Rich Dad Poor Dad
Author: Robert T. Kiyosaki
Reviewed by me
Genre: Business
Topic: Personal Finance
Summary:
Robert shares six simple lessons that he learned during his childhood from his Rich Dad and Poor Dad about money and how having a solid foundation on finance made him a millionaire. He strongly believed, "One of the reasons the rich gets richer, the poor gets poor, and the middle class struggles in debt is that the subject of money is taught at home, not in school." Money comes and goes but if you are educated on how money works you gain power over money and begin building wealth.
Poor Dad is Robert's real dad who has a Ph.D. and works for the government. Rich dad is Robert's friend, Mike's dad who never finished the eighth grade but was one of the richest men in Hawaii. Poor Dad worked hard for money and Rich Dad made money work for him.
Robert explains how Poor Dad always taught him that money is evil, therefore he should play it safe. Get a degree and get a high earning job with good benefits. Rich Dad says that this formula is a direct path to the Rat Race; an endless cycle of get up, go to work, pay the bills, and repeat. Most poor and middle class people are stuck in the Rat Race.
Rich Dad taught him the most valuable asset is your mind. Having a strong mindset about money will determine if he can get out of the Rat Race. Instead of saying "I can't afford it", ask yourself "How can I afford it?" Use your powerful mind to come up with creative financial solutions. As a young boy, Robert learned that it is important to be aware of your thoughts and how you express yourself. Your thoughts become your reality. Poor Dad never thought he could be rich. Rich Dad always referred to himself as rich, he would say, "Broke is temporary. Poor is eternal". Proper mental exercise increases your chances for wealth. There will always be risk, but use your financial intelligence to lower the risk. To have financial intelligence is to have more options by using your mind to create opportunities or alter situations to work in your favor. If opportunities are not going your way, what can you do to improve your financial position? You create your own luck.
The key to financial freedom is a person's ability to convert earned income (job) into passive and/or portfolio income (investments, stocks, bonds). If you want to be rich, then work hard to obtain passive/portfolio income so you don't have to rely on earned income.
Below are the 6 lessons from Rich Dad:
1. The Rich Don't Work for Money
Life is going to push you around but you have to decide if you're going to give up, fight back, or learn something from it and move on. Those who don't learn the lesson, blame others for the situation they are in or play it safe and never risk or win big. Realize that life is giving you a lesson because you need to learn something and grow wiser from it. When it comes to money, people are controlled by two emotions: Fear and Greed. Poor/Middle class people work for money so they either accept the small paycheck or look elsewhere for a higher pay. Rich people work hard because they fear being poor. Emotions are what makes us human but don't let fear do the thinking. Money is an illusion. It is not real. Money is an idea. If you want more money, simply change your thinking. Instead of falling into the trap of the Rat Race, use your mind to think of opportunities to grow money.
2. Why Teach Financial Literacy?
People have money problem because of lack of financial education, they spend money they don't have and they don't understand what is an asset and a liability. If you want to be rich, then buy or build assets and keep liabilities and expenses low. You must understand cash flow. A poor person's cash flow is earn income from a job to pay expenses. A middle class person's cash flow is earn income from a job to buy liabilities (home/car/luxury) which increases your expenses and leaves no profit. A rich person's cash flow is assets generating more than enough income to cover expenses with the balance reinvested into assets.
3. Mind Your Own Business
There is a big difference between your profession and your business. Jobs are people's profession but they still work for someone else: employer, the government (taxes), and the bank (mortgage). Your business revolves around the asset column whereas your profession revolves around the income column. To become financially secure, a person needs to focus on spending additional money on income generating assets instead of liabilities. Robert recommends acquiring assets that you love or have interest in so you'll take care of it and you'll enjoy learning more about it. Understanding accounting and market trends is important for identifying the strengths and weaknesses of a company and making smart investments. Is the product/service emotionally driven? Is it feasible under current market conditions?
4. The History of Taxes and Power of Corporations
The government created tax laws primarily to punish the rich. However the government got greedy and taxes trickled down to middle/law class people. However, rich people find legal loopholes like corporate deductions to avoid paying more tax. Corporations has lower income tax rate than individual tax rate. Certain expenses from corporations can be paid pre-tax. To be rich it is important to know the protections of the law and the tax advantages.
5. The Rich Invented Money
Small amount of money can turn into a large amount by compound interest and smart and well-timed investments. Reinvest money earned from assets to grow income. Spend excess on legally allowed pre-tax expenses to avoid taxes. "It takes money to make money" is the thinking of financially unsophisticated people. They simply have not learned the science of money making money.
6. Work to Learn. Don't Work for Money.
There are so many talented and highly educated people earning less than what they are capable of because our current education system prepares youth for the workplace by developing specialized skills. The more specialized you are the more you are trapped and dependent on that specialty. Rich Dad encourage the opposite: know a little about a lot. Rich dad groomed Robert to learn all areas of business and management skills, such as managing cash flow, managing systems, and managing people. Robert recommends for young people to seek work for what they will learn more than what they will earn. Take a long view of your life and think about where you are headed. Do you want to struggle paycheck to paycheck or do you want financial freedom?
In addition to being financially literate, you have to overcome fear, cynicism, laziness, bad habits, and arrogance. Winning means being unafraid to lose. Winners are inspired by their failures and losers are defeated by their failures. Instead of being cynical, analyze the problem and see opportunities that everyone missed. Instead of making excuses and avoiding problems, think of possibilities and have the desire to do and be better. Being arrogant is costly so have an open mind and surround yourself with experts.
Robert gives some self motivating advice to stay focus: have a goal/purpose, make daily choices to feed your mind, don't listen to poor or frightened people on money, work with people smarter than you, learn quickly, be self-discipline and do not succumb on pressure, have a hero/mentor, give for the joy of giving.
Robert gives advice on how to get started: assess what is working and what is not working, look for new ideas, find someone who has done what you want to do and learn from them, take classes/read/attend seminars, make a lot of offers to get the best deals.
My Personal Opinions:
Robert offers many great advice and motivation to get rich. He knows that the current education system will put many young people in the Rat Race and he provides hope for them to get out of the trap by promoting the importance of financial education. Instead of letting life push you around and having financial burdens, you have to take control of your life and get ahead. Knowing financial terms is not enough to be rich, you must develop a strong mind to overcome fear and self-doubt. Money is a scary subject since we let it control our lives but if we realized that money is not real, it is only an idea, we can use our mind to make money work for us.
Rich Dad taught Robert that buying a home is a liability and Robert teaches that as well, however I think it's hypocritical since Robert's fortune came from buying foreclosure property and selling them for a profit. Therefore I think real estate that generates income is an asset worth having.
I think Robert was very privilege to learn these lessons from Rich Dad at a young age. Like Robert's Poor Dad, I also grew up with parents that pushed me to get a secure job with good benefits. I wonder what my life would be like if I had learned these lessons as a child/teen, however putting aside the what ifs, I am motivated to taking the steps to make wiser financial choices to better my life. I am encouraged after reading this book to develop my financial literacy. The next step I will take is learning what is passive and portfolio income and how to obtain them.
