RICH DAD POOR DAD
6 KEYS LESSONS
As many high school students make their college decisions, the debate continues on the link between higher education and future success. While colleges may enable students to pursue rewarding careers, many graduates may still lack the financial literacy and knowledge to develop wealth. As author, Robert Kiyosaki, describes in his book Rich Dad, Poor Dad, higher education and a job don't guarantee wealth. It's the application of financial knowledge, which separates the wealthy from the lower class.
Robert Kiyosaki compares two case studies of financial knowledge through his two "dads". The first being his Poor dad, his biological father who was a well-educated, highly paid government official and the other being his Rich dad, a close mentor who owned a successful business despite only having an 8th grade education.
Although the well-educated biological father had a high paying job, he was constantly struggling with debt and paying off most of his expenses. The business owner, however, developed a fortune allowing him to live comfortably and not be concerned with current expenses. This goes against common logic where job security and income are the key markers to wealth. As Kiyosaki illustrates through his two dads, income isn't everything, it's the approach to money and wealth that is life changing. Kiyosaki provides readers with 6 main lessons of the wealthy to help provide guidance.
Lesson One: The Rich Don't Work for Money
There are two main emotions which can prevent people from developing wealth: fear and desire; fear of not being able to pay monthly expenses or fear of losing money keep many entrenched in the day-to-day work, preventing many from evaluating investments and other sources of income.
The desire to keep up appearances via buying expensive clothes or cars drives expenses so high that people have no choice but to stay focused on their jobs to maintain their lifestyle. Lesson one is all about understanding those two emotions and stopping them from hindering one's success. The Rich Dad was more focused on ways of creating residual money, money that increases even if you don't work, rather than waiting for the next job with a pay raise.
Lesson Two: Learning Financial Literacy?
Developing financial literacy is key to having any success with money. Financial literacy is simply the study of managing one's finances. Robert Kiyosaki breaks down the basics of financial literacy in order to show the differences in cash flow for different income levels.
There are a few key terms one would need to understand in order to see differences. Income is simply the amount of money you earn (wages, salaries, etc.). Expenses are things like (taxes, food, rent, clothes, fun, and transportation). An asset is something that puts money into your pocket (stocks, bonds, investments). A liability is anything that takes money out of your pocket (home mortgages, loans, credit card debts.)
The best way to understand the difference between the haves and have nots are through situations shown below:
This is the situation for those in lower income brackets:
Job (providing income) is less than expenses (taxes, food, rent, clothes)
No Assets, No Liabilities
Compare that situation to the wealthy:
Assets (stocks, bonds, notes, intellectual property) are greater than income (from job)
No Liabilities
To put it simply, the rich are able to live well off of the returns from their investments such as stocks and bonds covering any expenses. While a poor person is using the majority of his wages to pay for his prospective living expenses. In order to become wealthy, one must focus on increasing his assets (investments) rather than focusing on increasing his income (pay raises).
Lesson Three: Mind Your Own Business
As mentioned in the previous lesson, the key attribute that must be developed in order to gain wealth is to focus on your asset column. The rich focus on improving the size of their investments rather than simply waiting or demanding pay raises in their income.
This means keep your expenses low, reduce your liabilities and diligently build a base of solid assets.
Lesson Four: The History and The Power Of Corporation
This is the power of limited liability. By creating a personal corporation, the rich are able to avoid many of the personal taxes the poor face through corporate exemption. However, please note the word avoidance compared to evasion! Avoidance simply means using loopholes in tax laws to your advantage where evasion is simply not paying taxes at all, which is illegal.
By filing as a corporation, the rich are able to mitigate their losses to only the amount they invested in the corporation. They are able to pay taxes after they pay for expenses. For people who have jobs, it's the opposite case where taxes are taken out of paychecks before one is able to cover expenses.
In Comparison:
The Rich People with Corporations
1. Earn
2. Spend
3. Pay Taxes
The People who work for Corporations
1. Earn
2. Pay Taxes
3. Spend
Lesson Five: The Rich Invent Money
The idea behind this is that wealth takes a combination of financial intelligence and a little bit of guts. The one thing that holds a lot of people back is some degree of self-doubt. In order to gain wealth, there needs to be a degree of self-confidence. This means investing money outside of the comfort zone. While saving at the bank seems secure, it is not worthwhile because savings rates are often below the rate of inflation. As a Young Jeezy rap lyric once goes, "Scared money don't make money." Kiyosaki follows the same logic, if you truly want to see your investments grow exponentially you must be willing to put in the money in places that show relative risk.
Lesson Six: Work to Learn- Don't Work for Money
A familiar acronym for job is just over broke. Oftentimes, it's easy to get caught up in a job as a means of security or money. However, the rich use jobs as learning opportunities to develop necessary skills to be successful.
As Kiyosaki recommends in the book, take a long view of life. Instead of simply working for the money and security, which are important, take a second job or take classes that will teach you a skill. He goes even further to describe the three main management skills necessary for success:
1. The management of cash flow (assets and liabilities)
2. The management of systems (basic economic theory, political landscape, etc.)
3. The management of people
If one is able to focus getting jobs that develop these three major skills sets, he is well on their way on the path to success. After sharing these main lessons of the rich, Kiyosaki goes a step further by addressing the 5 main obstacles keeping people from actually following through.
1. Fear- Overcoming the fear of losing money. The fear of losing money is real. Everyone has it. The difference becomes how a rich and poor person handles the fear. Wealthy individuals use failure as a teaching moment and aren't afraid to fail.
2. Cynicism- This deals mostly with those around you. Follow your own path, because at the end of the day, wealthy individuals are a small percentage who go against the grain and don't follow the crowd
3. Laziness- One must be willing to put in the time and effort to build up their financial knowledge. This means being selfish and taking time out to build one's personal wealth.
4. Bad Habits- Reducing expenses is easier said than done, but one must be willing to break those bad spending/investing habits in order to be successful
5. Arrogance- Always be willing to reach out to those who are successful and those you want to emulate. To become wealthy, it's often a collaborative effort, bouncing ideas from prospective mentors.
With these main lessons in mind, one can walk towards the path of success. It just takes personal initiative to further develop the financial knowledge and management skills necessary for success. As Rich Dad, Poor Dad shows, higher education or a great job doesn't guarantee success but rather the skills and knowledge you are able to apply with your income separates the lower and middle class from the wealthy.
Character Summaries
Rich Dad, Poor Dad revolves around three main characters: poor dad, rich dad (Kiyosaki's second father) and the son (the author himself as narrator of the book). The essence of each character is:
Poor dad – educated but lacking the street smarts
Rich dad – very little education (eighth grade), tons of street smarts
Kiyosaki – the spectator who learns lessons from both but internalizes only rich dad's traits
Poor Dad
The author compares his poor dad to the millions of fathers who encourage their sons to do well in school so they could get a good job with a good company. Poor dad believed in the traditional principles of working hard, saving money, and not buying material things that one cannot afford. He believed that having a good job with a solid company is what one should aspire for; hence he expresses disappointment when his son leaves the employ of a large, reputable corporation.
Poor dad looks to education as the passport to success. He held a doctorate degree, went to Ivy League universities, but was always struggling financially. He believed he would never be a rich man and the author points out that this became a self-fulfilling prophecy. Poor dad was more interested in a good education than the subject of money. The author wrote that his poor dad would always say things like, "I'm not interested in money" or "money doesn't matter."
The author points out that poor dad was preoccupied with things like job tenure and security, Social Security, vacation and sick leaves, company insurance and salary raises and promotions. The author felt that his poor dad was more interested in these factors rather than on the job itself. This is what the author calls being trapped in the Rat Race. His poor dad worked hard incessantly but somehow never made it ahead financially. Poor dad's approach to the subject of money was based on working hard to have enough money to pay the bills (in contrast to rich dad's approach to make one's money work for him).
Rich Dad
The author wrote that it was when he was nine years old that he started realizing that his rich dad made much more sense than his poor dad. It was from rich dad that the author learned not to say, "I can't afford it", but instead to ask, "how can I afford it?" He explains this principle by relating an incident when he and his best friend Mike went to work for Mike's father. Rich dad paid them very low wages deliberately so that would stir anger and a sense of injustice in them and eventually for them to realize that in order to get ahead, one must work for himself and not for others. For example, in that part of the book when the author complains to rich dad that he can hardly afford to buy anything with the wages he is paid, rich dad tells him that he shouldn't dwell on the fact that his wages are low, but instead ask "how can I make more money" because this stimulates the brain to take action. His rich dad says that when someone says, "I can't afford it", his brain stops working. It therefore kills initiative and promotes passivity.
The author adds that while his poor dad invested time and effort in education, he did not have any knowledge on investing. His rich dad, by contrast, was very skilled in the investment game because that's all he did. The attitude of his rich dad about money was manifested in the saying "the lack of money is the root of all evil" (his poor dad, on the other hand, believed that the love of money is the root of all evil).
According to the author, rich dad also nurtured the idea that taxes punished producers and rewarded the non-producers. He was the type who encouraged money talk at the dinner table and was portrayed by the author as someone who learned to manage risk, instead of not taking risks.
The Son (Robert T. Kiyosaki)
The author begins his book, Rich Dad, Poor Dad, by saying that he is fortunate in having had two fathers. He learned valuable lessons from both of them, but in Chapter One it becomes evident which father had the more sensible approach towards money. He compares and contrasts both fathers' views about working hard, getting an education, saving and investing and realizing how habits of the rich and poor significantly differ. He attributes his financial acumen through the many conversations he carried out with his rich dad.
The author takes a common sense approach to the subject of money and emphasizes the need for accounting knowledge so that the reader clearly understands what assets and liabilities are. He makes simple diagrams that show the inflow and outflow of money and how the rich build up the asset column and the poor build up the liability column (expenses). It is obvious that the author places much importance on accounting knowledge – no matter how boring it is - because he says it is "the most important subject in your life."
By using numerous examples and anecdotes, the author drives home his messages effectively, revealing his pro-capitalist stance.
The author also shows his understanding of the mechanisms employed by the government and the tax man and concludes that it is the middle class that actually pay for the poor. The rich are the ones who are hardly taxed because they have the knowledge to use tax legislation to their advantage.
SUMMARY
Rich Dad, Poor Dad is the story of author Robert Kiyosaki's upbringing in Hawaii and his two fathers – one rich father (not biological) and one poor father (biological). Kiyosaki was forced to choose between following in the footsteps of his poor father – a highly educated government worker – or his rich father – an entrepreneur who never graduated high school.
Ultimately, Kiyosaki decides to learn from his rich dad - who wouldn't? The book focuses mostly on the education and financial advice Kiyosaki learned from his rich dad. His rich father was able to create a multi-million dollar empire from virtually nothing, using his financial acumen and the power of his imagination.
The book is organized into six main lessons that Kiyosaki presents to becoming successful:
The rich don't work for money
Financial literacy is key
Own businesses, rather than work at them
Understand taxes and the power of corporations
The rich invent money
Work to learn rather than work for money
These lessons combine the teachings of Kiyosaki's rich dad with experiences from his own life. They contain recurring themes, such as the importance of improving your financial IQ and financial literacy, a set of skills that Kiyosaki believes is absent from the current education system.
The book also shows how the rich don't work for money, they force money to work for them. The rich acquire assets rather than liabilities. Kiyosaki stresses the importance of being able to differentiate between an asset and a liability. He states that in order to be truly wealthy, your asset column must be robust and able to offset your living expenses. He explains that most people believe a higher income will make them rich, but in reality, a strong asset column will. Higher incomes often lead to higher expenses, higher taxes, and more debt.
Rich Dad, Poor Dad explores the power of corporations and demonstrates how the rich use corporations to house their money. Corporations allow for expenses to be paid pre-tax, saving the business owner lots of money. Kiyosaki dispels the myth that taxes hurt the rich the most – instead he shows how many rich people avoid taxes and outsmart the system. Taxes actually hit the poor and middle class much harder.
Kiyosaki also explores the character traits and beliefs that hold people back from becoming rich. He claims these obstacles can be grouped into five different categories: fear, criticism, laziness, bad habits, and arrogance. The book explores how each one of these factors acts as an impasse to financial success and gives real-life examples.
Much of the book is devoted to self-reflection. He discusses at length the ways in which his rich dad and poor dad have influenced him. Although he ultimately chose to emulate his rich dad, he still retains some of the beliefs that his poor father held, such as the importance of social responsibility and empathy for what he terms as the "have-nots."
