“Rich Dad Poor Dad” is a must-read book in the personal finance genre. If you’re interested in personal finance, you should start with this book. It’s packed full of knowledge that the rich teach their kids the poor don’t.
Robert Kiyosaki is an American businessman and author who was born in Hawaii in 1947 making him 74 this year. As of January 2021, Robert Kiyosaki has a net worth of 100 million.
What does he mean by “rich dad” and “poor dad”? To put it simply, Mr. Kiyosaki grew up with 2 father figures. No, his parents weren’t gay if that’s what you’re thinking. You see, his dad (poor dad) was a teacher and his friend, Mike’s dad (rich dad) was a businessman. Both men had a very different approach to money and although Kiyosaki’s dad wasn’t poor yet at the beginning of the story, he soon will be. Similarly, although Mike’s dad wasn’t rich yet, he soon will be. What is it that made these two men live such drastically different outcomes?
Even Koyosaki’s father predicted that Mike’s father will soon be rich and he was right. Kiyosaki took a lot of time to understand what Mike’s father tried to teach Mike and him. Kiyosaki looked up to Mike’s father for he had a lot of good lessons to preach and thankfully he did.
Kiyosaki was fed two conflicting types of advice growing up by these two father figures. It took courage and wisdom to stray from his own father’s advice and follow someone else’s. We’ll talk about what those lessons are.
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Table of Contents
Lesson 1: The rich don’t work for money
Robert was hired by Rich Dad to work in his factory with little pay. At some point, he was fed up and wanted to quit. Rich Dad told him to come to his office. He wanted Robert to experience the pain and sweat that goes into making money. Rich Dad instructed Robert to look at his employees. They didn’t like their jobs any better than Robert. Rich Dad’s 150 employees worked endless hours at the factory with little pay and will probably continue to do the same thing for the rest of their working lives.
The rich don’t work for money, they make money work for them so they don’t have to be a slave to money like all those employees or the majority of the world.
If you work for money, your life would look something like the following: go to work, get money, buy things you want, pay bills, repeat. When money works for you, your life would look something like the following: go to work, get money, pay bills, invest, create other sources of income, invest, quit your job, get paid from your investments, live the life you want.
You can have a high-paying job but still, be a slave to money because you may lack the insight to make money work for you.
Eventually, Rich Dad told Mike and Robert to work for free if they want to learn the lesson and they did, for three weeks. Then, Rich Dad offered them a payment of $5 an hour (it was a lot then) and they refused. Rich Dad was impressed. Most people have a number to which they can be bought. You see, most peoples’ lives are controlled by fear and greed. The fear of not having money makes them work for their paycheque and the greed of wanting other things they don’t need keeps them working for money. You could make millions per year but still be chased by money. This is unequivocally the rat race. It’s not unheard of for people to be stuck in their well-paying job for their entire lives in order to fund their lifestyle to which they need more and more money to maintain. They go to work hating every second of it. They aren’t free despite how much they earn.
Rich Dad wanted Robert and Mike to not think from a place of fear like most people and to not let their emotions get in their way. Thinking logically is a better response. It can be hard for people to confront their need for money and that their lives are run by money but it is the truth doesn’t matter how uncomfortable it can be for some. Once you confront that fact, you can begin to see money in a different light. You begin to see the looming importance money plays in each of our lives and not just merely as a token to get the stuff you need and/or want. You can then start to see opportunities everywhere to make more money.
Mike and Robert used this lesson to start a library in their home and made some pretty cash from it.
Greed and fear make people stay at a job they hate. They fear to not have money so they work. They greed for things they don’t need so they stay. The more money they make, the more they spend. It’s a neverending cycle. To solve this, we need to separate emotion from money in order to escape the cycle (rat race). We need to start creating other sources of income, we need to not fear the attempt to make money from an untraditional way, we need to stop acquiring the stuff that we don’t need.
Lesson 2: It’s important to teach financial literacy
“It’s not about how much you make but how much you keep — and how many generations you keep it” — Rich Dad Poor Dad
If you want to be rich, you need to learn financial literacy. Money falling into the hands of the wrong person will be gone in a short period of time. Money in the hands of the right person will grow more money. A person can make a lot of money or have a lot of money but still end up poor because they don’t know how to manage money or keep their money. You can make little money but know how to use your money to make more money and you’ll eventually be better off than someone who makes a lot of money but spends it all at the end of the month.
One of the most important things to know when learning financial literacy is knowing the difference between an asset and a liability. Acquire as many assets as you can while incurring as few liabilities as you can. An asset is something that increases your net worth (gives you money) and a liability is something that decreases your net worth (take money from you). An example of an asset is stocks and an example of a liability is a car. The stock’s value increases over time so if you decide to sell it, you get money. The car takes money out of your bank every month for repair, maintenance, gas, parking pass, etc. Cars also depreciate in value over time so you are only able to sell it for less than you paid for when you decide to sell.
The lower-class and the middle-class have much more liabilities than assets while the upper class has a lot more assets than liabilities.
To illustrate my point, this is what most lower-class families are like with their finances: they get a job that pays them a salary. Then, that money goes directly to expenses (taxes, rent, food, transportation, clothes, etc).
Middle-class families handle finances in the following way: they get a job that pays them a salary. Then, that money goes directly to expenses and liabilities (mortgage, car loan, credit card debt, student loan, etc).
This is where you need to pay closer attention because this is how the upper-class families handle finances. They don’t have a job that pays them a salary, their money works for them. They may have some liabilities (mortgages, consumer loans, credit cards, etc) but they have more assets than liabilities. These assets could include real estate, stocks, bonds, notes, intellectual property, etc. The assets generate money for them in the forms of income (rental income, dividend, interest (paid to them), royalties, etc). They use the money they earn from the assets to fund their lifestyle which oftentimes is way below their means. And of course, they can use the asset to pay for any expenses (taxes, mortgage payment, food, etc).
You see the point I’m trying to make? If you have money to spare after the expenses, put it into something that can make you more money. Not everyone has the luxury to do this as may they earn so little that when subtracting the expenses, they are left with nothing to invest. If you’re in that boat, you need to find ways to create other sources of income so you have more money to spare. If you have little money to spare, see if there’s anything you can cut out to save more money so you can buy more assets. Maybe you don’t need to go to that many restaurants per month, maybe you don’t need that vacation as much as you think you do, maybe you can cook at home more, etc.
A person with financial literacy knows how to make more money with the money they have. Those without financial literacy are often left with nothing given some time.
Lesson 3: Mind your own business
Your role in life should not be to make someone else rich. It should be to make yourself rich. Your profession is not your business. If you work for a bank, you’re a banker, you’re an employee of said bank, and that bank isn’t yours, it isn’t your business. You can be fired from it anytime they wish. You aren’t in control of your financial life as much as you think when someone else hired you to work for them.
Acquire assets that make you money. Keep your day job in the meantime if you have to. Some list of assets that Robert spoke of include:
- Businesses that don’t require his presence (you can hire someone else to run it for you and you get most of the money from that venture)
- Stocks
- Bonds
- Real estate that makes you income (ex. rent)
- Notes (IOUs)
- Royalties (ex. book sales)
- Anything else that makes you money or appreciate in value and has a ready market
You can use the money you earn from these assets to buy luxury. Don’t use the money from your day job to buy luxury or you won’t be free.
4. The history of taxes and the power of corporations
Taxes were first introduced as a way to punish the rich but it ends up punishing the people who voted for them — the middle class and the lower class.
Robert went on searching for answers in the history of taxes. He found that as the government’s appetite for money grew, it was no longer just the rich that was paying taxes. Soon, it was the middle class and then the lower class. The upper class later found a way to get around taxes by creating corporations.
A corporation is just “a legal paper that creates a legal entity”. A corporation is not a person or a group of people. A corporation is also not a factory. A corporation can manage certain expenses that are paid for using pretax dollars.
To give further context to what that means, think about this: imagine going to work and working extra hard for that bonus paycheque. Yes, you get that extra $3000 at the end of the year but you ended up having to pay more in taxes. You may think that is fair but wait until you hear how much less tax a corporation pays if they make the same amount of money this year.
Rich people often have a way around paying less taxes through many laws protection, legal rights, and loopholes. For instance, there are certain expenses that can be written off using the pre-tax dollars of a corporation.
Say you’re a business owner and you create a corporation. Your business brings in $100,000 a year. You then decide to take that vacation to France which costs you $10,000. You can legally write that expense off (the trip to France) using your pre-tax dollars by claiming that it was a part of your operation as required by the corporation. Maybe it was for a “business trip”. Hint hint. Now, your total earnings for the year is $90,000 instead of $100,000 which saved you quite a bit in taxes. Your taxable income is now $90,000. On the other hand, a person who makes $100,000 a year at their job would pay much more in taxes than a business owner with a corporation since they can’t claim certain expenses with pre-tax dollars.
There are many ways that the rich use to avoid paying more taxes. Taxes are for the poor. The rich pays much less tax as a percentage of their total earnings compared to the middle class and the lower class. Knowledge is power. We must learn to educate ourselves in the working of taxes to think like the rich.
Many rich people would hire tax consultants and attorneys for this reason. It saves them money in the long run. The tax consultants and attorneys would work to find ways to help the rich pay less in taxes.
This is what the business owners with corporations do:
First they earn money, then they spend, and then they pay taxes.
Here is what employees working for a corporation do:
First they earn money, then they pay taxes, and then they spend.
Do you see what is going on here? Corporation has a lot of power. It not only pay less taxes it also separates itself from its owners so that the business owners get certain protection from the law.
Rich people oftentimes have influential power in making big decisions for a country. They make the rules and the laws. Even if the law may appeal to the mass it’s not always beneficial for everyone down the road.
If you understand the history of taxes you may learn to think more like the rich.
5. The rich invent money
Mr. Kiosaki gave the example of Western Union failing to sell for $100,000 because no one saw the opportunity. Today, Western Union is a multi-billion-dollar industry.
In another example, a manager of a local company begged on live TV to have his job back because he just bought a house and didn’t want to lose it.
Fear and self-doubt exist in all of us. We doubt our abilities to do things and fear to not succeed so many of us are stuck in the same place unwilling to step outside our comfort zone.
Why are we talking about this? Well, courage is what makes the difference between those who are successful and those who aren’t successful. You see the people undervaluing their company and the people who fear losing their jobs? What do you think makes them different from the people that are able to create a highly profitable business and those that are able to become their own boss? It’s the person that makes the difference. We all fear and we all doubt but those that can conquer those feelings may be rewarded greatly.
To be a financial genius, we must be bold with our moves. Be confident in our decisions. It requires knowledge to play this game. If you don’t know personal finance, educate yourself. Don’t be afraid to leap and use what you learn.
300 years ago, land was where the wealth is. If you own a lot of land, you’re rich. Then, sometime later, wealth was in factories. If you are the owners of productive factories, you’re rich. Today, wealth is in information. Information is all out there, flying at the speed of light. Information changes faster with each passing year. Think about NFT. Just a year ago, almost no one heard about NFT now everyone knows what an NFT is and many are in it to make money. Don’t forget the metaverse as well.
Those of you who cling to old ideas, unwilling to adapt to new changes will be left behind. Those of you who embrace change and welcome information will be made richer. There will be many multi-millionaires being born in this information age. It’s all out there. You just need to grab it.
When you educate yourself in financial matters you become more financially intelligent and you discover new options for yourself to create more opportunities in making money. Luck can be created you see.
Money isn’t actually real but yet we all agree that it has value. If an alien visit us and see our coins and paper “money” it has no real value to them. Money only has value because we all universally agree that it has. If today, everyone starts behaving as though money has no intended value, $100 bills can be flying everywhere and no one would pick it up.
Many people make a ton of money using just ideas. We’re taught very basic ideas about money and very basic ways of making money — go to school, get a job. But there are other ways. Money is invented. We invent its value and we invent how we make money. To make more money, we need to think like the rich. Money is a tool. We use money to buy things and we can use money to make more money. Opportunities to make money are everywhere.
In the early 1990s, there was a huge real estate opportunity in Phoenix and people were making $40,000 in minutes by buying and selling homes quickly. It may be easy and safe to just put money away but if you just store your money away, you risk it not making its full potential. That money could be the seed investment for a home that you can later resell for a $40,000 gain immediately. Later on, Robert moved on to other ventures when it was no longer as profitable in the real estate space in the areas at the time. And yes, he continues to turn his money into more money.
As you gather more financial knowledge and develop your financial IQ further, you may begin to try things. Sometimes you win and sometimes you fail but most importantly, you have fun. There are no investors out there that have never lost money. Don’t be afraid to lose money to make money. To succeed, we must learn to fail.
The two types of investors out there are those that buy a packaged investment made ready for them by retail outlets and those that use their knowledge to create their own investments. The second type is professional investors.
To be professional investors (which you should all aim to be) you must develop 3 main skills. Number one skill, you must see opportunities where others missed. Number two skill, you must raise capital (money). Number three, you must learn to hire intelligent people (those with more intelligence than you) to help make it happen.
Don’t avoid risk, instead, manage risk. Risks are everywhere but if you are financially smart, you can use risks to your advantage. When most avoid stepping outside of their typical 9–5 to try something different, you are willing to take on the risk and the reward can be tremendous. It could mean a lifetime of freedom from a soul-crushing 9–5 that other people just accept is their only reality because they’re unwilling to see past risks.
6. Work to learn — don’t work for money
Robert did an interview with a journalist some time ago and the journalist told him that she wished she was a best-selling author too just like Robert. Roberts replied to her that she should learn how to sell. The journalist was offended because she had a master’s degree in English literature and didn’t think how learning how to sell would help her. In fact, she didn’t like salespeople. Robert reminded her that he’s not the best-writing author. Instead, he’s the best-selling author.
Many talented people are out there and they struggle with finances because they specialize. If they could learn just one more skill they may become rich.
Robert worked a variety of jobs to gain experiences and different perspectives. Many of us when finding a job, focus on the salary and the benefits. Instead, Robert believes that we should focus on what the job can teach us. The skills that you learn at your job can be very lucrative if you can use them to your advantage.
Today, it is wise to jump from company to company. That’s how to gain fresh experience and also how you can jump your pay faster than staying at the same company.
There are a lot of poor talented smart people in the world. What you need to realize is that it’s not necessarily the supposed skills that they aren’t good at but the inability to market themselves and make their work known to the world.
The three main management skills that you need to develop for success are: 1) Management of cash flow
2) Management of systems
3) Management of people
There are many skills that if you could master could dramatically increase your chance of success and become rich. You must learn them if you want to become rich. It’s not how good you are at making hamburgers but how good you are at managing a successful hamburger-making business.
7. Overcoming obstacles
Now that we established how important being financially literate is, we need to talk about why some financially literate people aren’t able to develop good cash flow.
The main reasons why people who are financially literate can’t increase cash flow are the following:
1) Fear
2) Cynicism
3) Laziness
4) Bad habits
5) Arrogance
How do we overcome fear?
Everyone fears losing money. No one wants to lose money but the only ones who don’t lose money are those that haven’t tried to make money through investment.
A rich person handles the fear of losing money differently than a poor person. Rich people know that it’s okay to be fearful of losing money and to overcome that fear, we must allow compound interest to do its wonder. A person who started investing at 20 gains much more insight and monetary gain than someone who started at 30. Whatever age you are right now, you still have an edge over your future self who is a couple of years older.
We must also think like a Texan. When we win big, we should be proud and when we lose, don’t bury it. Be inspired by your losses instead of hiding away in shame.
There is a famous quote by Rockefeller. He said, “For winners, losing inspires them. For losers, losing defeats them”.
Most of us play it too safe so we don’t lose. If you don’t risk losing big you won’t win big. Of course, you must decide for yourself how much you’re willing to risk. But for those that win big, they incur great risks and great losses before.
You can have a balanced portfolio. Put your money into an index fund, the easiest way to make money. You won’t win big but over time that money can still grow big. If you want to win big, it’s okay to be a bit unbalanced in the beginning before building up your balanced and safe portfolio.
Invest in a few things and focus. It’s not about not fearing to lose money but managing your fear of losing money. Having the right attitude towards failure can pay off in the long run.
How do we overcome cynicism?
It could be the doubt you have for yourself or the doubt that others have for you. We let our doubts and fear of failure stop us from doing something that can give us a big return.
For all the savvy investors out there, they know what looks like the worst of time may actually be a golden opportunity to make money. When most people are turned away, and too afraid to act, pulling the trigger can be greatly rewarded.
Robert had a friend who was about to buy a condo but a neighbor (who was no investor) told him it wasn’t a good deal and he missed out on the opportunity to double his money by listening to a cynic.
There are also many people out there who stay away from the stock market because they don’t want to lose money. Their fear keeps them from finding new ways to make money. You must do your due research on the stock market before you invest. All I’m saying here is that the stock market when played right can be very lucrative but a lot of people choose to stay out of it because they don’t want to lose money.
Sometimes you just have to go for it. Just like a fish in a river. If they don’t take the risk and swim towards that side of the river where there’s an opportunity to reproduce, once the tide changes they lose that chance forever. If you don’t act, the opportunities will just pass you by.
Do your research and begin. Don’t let people talk you out of something just because they and/or you are afraid of losing money.
I’ll give a personal example, my mom is very risk-averse. She doesn’t like taking big risks with her money so she play it safe by saving everything and investing in nothing. She advised me not to put my money in the crypto market or the stock market because there are a lot of risks. Risks that she didn’t understand. My brother didn’t listen to her and invested in ethereum early on and made some pretty cash. Had I researched the crypto market earlier I would’ve made the decision to invets in ethereum as well. Of course, there are always new opportunities coming up to make money through different stocks, cryptocurrency, NFTs, metaverse land, etc.
Keep your eyes peeled and don’t just not do something because everyone doubts it.
How to overcome laziness
We can be all too caught up with our lives. Too busy to take care of health or wealth as much as we should. We neglect our relationships because we’re too busy but in fact, it may just be laziness.
To overcome laziness we must have a bit of greed. We’ve been raised to think of greed and desire as a bad thing but it doesn’t necessarily have to be. With a little greed, we start wanting more instead of just accepting that we can’t have more.
Instead of looking at something we want and thinking “I can’t afford that” we think to ourselves “How can I afford it?” that’s a better way to overcome the laziness of simple acceptance. It’s effortless to just accept that we can’t afford something because we don’t have to do anything about it. But to have a bit of greed and to stop being lazy is to actively work hard to afford something that we want but can’t get.
When Robert wanted to escape the rat race, he kept thinking of how he could afford to never work again. His mind came up with many ideas. He was also fighting hard against the old view that society has instilled in all of us the notion that greed is bad and we should feel guilty if we want more money and such desire is to be suppressed.
Without a bit of greed, progress cannot be made in the money world. We desire a better life. A life where we can have the freedom to enjoy life and not be bound by a job. With a bit of greed we may overcome the lazy tendency to accept the monotonous boring rat race life.
How to overcome bad habits
Pay yourself first and everyone else last is what Robert tried to teach people. If you pay everyone first, you may be left with nothing. If you pay yourself first, you may work harder to make sure you are able to pay other people.
Robert used the example of his rich dad who would pay himself first and work hard to think of how to pay his creditors by thinking of ways to come up with extra income.
Personally, I think this could go really wrong if you interpreted this in a wrong way. It would be awful if you are unable to come up with the extra income after paying yourself first. Say you need to pay your rent of $1500 per month. You need to set aside income for that every month. Not everyone can just magically come up with that extra income consistently every month. However, there is some truth to this idea of making sure you pay yourself first. For instance, instead of using your paycheque to buy the things you don’t need, invest in assets that pay you first. This could be a stock that pays you dividends or just a stock that keeps on growing more value over time.
How to overcome arrogance
Many people would use arrogance to hide their ignorance. The times when Robert was arrogant were the times that he lost money. He didn’t want to admit that what he doesn’t know is important and refuse to learn more about it.
You must overcome this human tendency to be arrogant at the unknown. You could stubbornly believe that Netflix is not going to overtake Blockbusters so you refuse to sell the Blockbuster stocks to invest in Netflix. You don’t understand the Netflix business model and you refuse to do your research or admit that you may be wrong about its potential. That’s where you lose money. This is an example I thought up not one from the book.
Being ignorant isn’t a bad thing as long as you do your due to correct it by educating yourself and finding experts in the field to teach you.
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