Rich Dad, Poor Dad Summary
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I signed up for a free trial of Audible and got a free audiobook. Due to the high recommendations from friends and other personal finance bloggers, I chose Rich Dad, Poor Dad as my starter audiobook.
As a busy pharmacist, while maintaining a nascent blog, I find myself with less and less time. I turned to podcasts and now Audible to feed my appetite for continuous learning during my daily commute to work and exercise routine.
One of the most important things I learned from pharmacy school is to be a life-long learner. If you don’t have the time to read, then you have to find other ways to get that information. I find that Audible is a great way for me to get my personal finance reading (listening) done.
Rich Dad Poor Dad Summary
Robert Kigosaki grew up with his poor dad, who has a Ph.D. and works as a teacher, on the other hand, Rich Dad only finished eighth grade but is well versed in financial intelligence.
Both dads earned a significant amount of money but poor dad struggled financially throughout his lifetime, while rich dad was financially successful and went on to become one of the richest man in Hawaii.
If you weren’t born with rich parents you can learn from Kiyosaki to accumulate wealth using the principles from his book.
Principles from Rich Dad, Poor Dad
Principle #1: The Rich Don’t Work For Money
Rich people buy assets, poor people buy liabilities that they think are assets.
Example: Pharmacist A spends 8 hours every day working for his money and can’t get out of the rat race. While Pharmacist B spends most of his time looking for assets and always has money.
“The rich don’t trade their time for money, they acquire assets that make money for them.”
“Rich people acquire assets while the poor and middle class acquire liabilities that they think are assets.”Robert Kiyosaki
Is your phone an asset? The answer is no, is your Lexus an asset? The answer is also no. What about your house? According to Kiyosaki, a house is not an asset.
Finally, is owning a part of a company an asset? Yes, now we’re getting somewhere.
An asset is something that puts money in your pocket.
A liability is something that takes money out of your pocket.
The rich buy assets such as stocks, bonds and real estate. In the long run, these resources will create even more money for them in the future.
The middle class earns their money from a good job, but the moment they get their salary, they spend it on liabilities, which they think are assets. Examples of such possessions are: TVs, cars and vacation homes.
You might look rich and your friends might admire you for it, but you will never actually be rich practicing this.
But isn’t it risky to be investing the stock market? What if there’s another financial collapse? These are good questions to ponder.
For example, people justify buying an expensive car, which is a guaranteed money loss, while they think that buying financial assets is stupid because you might lose money.
Poor dad is never interested in money, according to Kiyosaki, “fear and desire can lead you into life’s biggest trap.”
Principle #2: Financial Literacy
“It’s not about how much money you make, but how much money you keep.”
“Intelligence solves problems and produces money, but money without intelligence is soon gone.”Robert Kiyosaki
You must understand the difference between a liability and asset.
Liability takes money out of your pocket while an asset puts money into your pocket.
The lack of financial knowledge is the reason why the rich is getting richer and the poor gets poorer.
You need to learn to manage risks, information can reduce those risks.
Principle #3: Mind Your Own Business
“The rich focus on their assets while everyone else focuses on their income statements”
Stop focusing on your income, instead focus on your assets.
Build and maintain a strong group of assets.
Examples are: a piece of real estate, a blog, or anything that produces positive cash flow for you every single month.
Principle #4: The Power of Corporations
The book gave an example of Robinhood-taking money from the rich and distributing to the poor. In our modern society, taxes serve that purpose. Tax is supposed to distribute money equally, but the rich are too smart for this because they’d find tax loop holes.
The end result is instead of the rich giving money to the poor, its more like the middle class is giving money to the poor.
This is one of the biggest secrets of the rich and they demonstrate as a smarter way to play the game of life. The rich used corporations to take advantage of legal tax loopholes and protect their money.
The most common expense for American households is taxes. In fact, you work from January to May just to pay your taxes, in effect, you’re working for the government in these months. This is due to the fact that some individuals pay up to 40-50 percent in taxes.
For example, Warrent Buffett, the third wealthiest man in the world is famous for paying less tax than his secretary.
If you own a business and make decent amount of money, you need to consider setting up a corporation.
Corporations are also good for the protection from personal lawsuits, which could be devastating to your personal finance. An limited liability company in my opinion can also serve this purpose.
To get rich, the books says that you need to train your financial IQ, which is comprised of your knowledge across several broad subjects.
To increase your financial IQ, you must increase your knowledge in the areas of:
- Understanding markets
- The Law
Accounting is for reading and understanding numbers. Investing is for using your money to make more money. Understand markets is the science of supply and demand. The law is understanding tax laws on how to keep more of your own money, which the book suggested corporations as the biggest tax loopholes used by the rich to make and keep more of their money.
“Financial IQ: The Combined synergy of the four topics.”Robert Kiyosaki
Principle #5: The Rich Seize Opportunities to Invent Money
“Great opportunities are not seen with your eyes-they’re seen with your mind.”
The single most powerful asset you have is your mind and if trained well, it can create enormous wealth for you. Another important point from the book is: “in the real world, it is not the smart who get ahead but the bold.” Risk takers tend to make the most financial progress, despite a lack of intelligence.
Principle #6: Work to Learn-Don’t Work for Money
“Rich people work to learn and not for job security.”Robert Kiyosaki
If you want to get rich, you should know a little bit about a lot of subjects. “J.O.B is an acronym for just over broke” it means that focusing only on one job will prevent you from becoming truly wealthy.
Principle #7: Overcoming Obstacles
“The primary difference between a rich person and a poor person is how they manage fear.”Robert Kiyosaki
Even if you have an excellent financial IQ, there are a few obstacles that will hold you back from becoming rich. These obstacles are:
- Fear– “Some people are so afraid of losing…that they lose”
- Cynicism-another way to look at this is “self-doubt.”
- Laziness can hold you back in so many ways, one of which is not trying.
- Bad Habits-smoking, watching too much tv, playing too many games
- Arrogance-“Every time I’m arrogant I’ve lost money because I believed that what I didn’t know wasn’t important.”
The Ten Steps to Awaken Your Financial Genius
- FInd a reason greater than reality-Have a strong reason to pursue financial independence.
- Make daily choices-Choose your daily activities wisely to invest in your mind and goals.
- Choose your friends carefully-Be careful who you choose to associate with.
- Master a formula then quickly move on to the next-Financial success is closely linked to how quickly you can learn new formulas for making money.
- Always pay yourself first to enhance your self-discipline-If you can’t control yourself, don’t try to get rich.
- Pay your brokers well-It’s hard to measure the power of good advice.
- Be an Indian Giver-Make investment that gets you free land or other goodies.
- Use assets to buy luxuries-Always buy luxuries with income from assets and not loans.
- Choose heroes-By having heroes, it becomes much easier to tap into your raw genius,
- Teach and you shall receive-When you need something, give what you want first, and it will come back to you in buckets.
Final Thoughts on Rich Dad, Poor Dad
Although I don’t agree with everything in Rich Dad, Poor Dad, it is indeed a very good book. Maybe I still have that “poor dad” mentally, but I wholeheartedly believe in education. While Kiyosaki didn’t say skip college, he thinks what you learn outside of college is much more practical.
What I do like about this book is the belief in life-long learning. Especially the fact that you can’t be too arrogance, arrogance can cause you to be blinded and ended up making bad decisions.
Another thing I agree with from his book is the lessons learned from failures. Failure as a valuable lesson is echoed in other venues. Recently, I listened to a good podcast from the Ted Radio Hour regarding failure and how it can teach you to be more successful. I personally believe in this.
Overall, Rich Dad, Poor Dad gives powerful lessons such as financial intelligence. You can call this financial alertness or financially alert, basically, you just need to learn and apply what you learn to accumulate wealth. Whether it be in real estate, stocks, bonds or other types of investments.