Rich Dad Poor Dad by Robert Kiyosaki is a book about mindsets more than pure practical advises. But those mindsets are really good.
- Working for someone else means helping someone get rich while putting little in your pocket
- The employed middle class pays all the taxes. They subsidized the poor while the rich avoid most taxes
- Work to learn, not for money
- Rid yourself of fear, laziness and arrogance to start down the path of wealth
Rich Dad, Poor Dad
The first and possibly biggest lesson Rich Dad gives to Kiyosaki is to step off the rat race. To stop working your life for someone else. Working for someone, being an employee, means putting little money in your pocket and lots of money in someone else’s pocket.
The Rich Don’t Work for Money
Kiyosaki says most people have been duped into playing it safe and not taking any risks.
So we have a whole army of poor and middle class people exchanging lots of their time for (little) money and some security.
One Single Rule: Asset VS Liability
Kiyosaki says there is one major rule for financial literacy and to grow rich. And that’s the Asset VS Liability Rule.
An asset is simply what puts money in your pocket. A liability is anything that takes money from your pocket.
And make sure that you only control assets
If you buy a house and live in it while paying mortgage and taxes, you got a liability.
If you buy a house and rent it and the rent pays the mortgage and puts something in your pocket, you got an asset.
Kiyosaki in this regard gives a great simple advice: never buy a house because of the potential for appreciation in the future. Only buy a house if it makes sense today. Is the cash flow positive (an asset)? Good investment. Is the cash flow negative and you believe it will appreciate soon? Don’t buy it.
Rich and Corporations Spend, The Poors Pay Taxes
Kiyosaki shows a rather belligerent attitude towards government and taxes here, but what he says still rings damn true.
The poor people pay taxes first and keep what’s left. Corporates and rich people who shield behind corporates know the systems and use loopholes to pay as little as possible.
Also, corporates don’t pay taxes first. They accrue income, spend and then only pay taxes later on what’s left.
Comparatively, it’s as if you received your salary in full, without taxes detractions, and then paid taxes on what you left at the end of the month.
Knowing the system, knowing accounting, loopholes, markets, investment vehicles and the law also helps you.
The ignorant gets bullied, the knowledgeable is in with a fighting chance.
Work to Learn, not for Money
Kiyosaki says you are one skill away from dramatically improving your life.
Many talented people are poor because they are only specialized in one skill only.
The author uses the example of a girl with a master degree in literature who refused to enroll in a sales and marketing course because she thought that was too beneath her.
He also uses a good example. He asked a room of people how many people can do a better hamburger than McDonald and everyone raised their hands. Everyone can do a better hamburger than McDonald and yet McDonald is a multi-billion corporation because it can sell well.
Kiyosaki says some key skills to learn are management skills, business system knowledge, and sales and marketing skills.
The author also suggests you hire people smarter than you are, something Napoleon Hill also talks about, and the business systems which is something Michael Gerber stresses in his great The E-Myth Revisited.
The author says that the 5 mindsets that most stand in the way of success and wealth are:
- Bad habits
I loved the story Kiyosaki shares. When he tells people there’s money to be made in buying and fixing real estate people reply they don’t wanna fix toilets.
Kiyosaki says it’s silly that people look at the small detail instead of looking at the bigger picture and bottom line.
My Note: To me, more than example of looking at the detail, this is a typical example of letting your ego get in the way of what you really want. And a typical example of sacrificing long term goal achievements for short term pain.
Rich Dad Poor Dad is famous for its cashflow quadrant.
The employee in the first square have a job, have no leverage and exchange time for money.
The self employed own a job and how much they work is related to what they earn.
The business owner owns a system and leverage other people’s time for income.
The investor leverages money to make money.
A collection of tips I took away:
- Pay yourself first: always put some money aside for yourself, and do it first thing
- Pick your friends: get around people who like talking about money
- Be generous: your professional supports are the people propelling to your success, choose a good broker, pay him well
- Find a bigger reason: find a bigger purpose in life to motivate you
- Start as many business as nedeed: 9 out of 10 businesses fail, say Kiyosaki. Good, then it means you gotta start 10 of them
Real Life Applications
Here are a few points I took away and I constantly try to apply:
Don’t buy liabilities
- Do you really need a car?
- Do you need gym memberships if you don’t go?
- Do you need to buy a house if you don’t have cash and pay mortgage and repairs?
- Do you need a pet?
- Do you need Netflix, Tinder Pro and all other subscription services… ?
- Low priced flats for renting
- Dividend paying stocks
- If for living, what if you bought a multi room house and rented out a room to pay mortgage?
- Storage units and sell space
Kiyosaki says it’s not how much money you have but how much you keep. The truth is deeper than it might seem: most people don’t have any money because they let expenses balloon when they start earning more.
Kiyosaki suggests what’s basically Tony Robbins method to move towards your goals: associate pleasure with what you want and disgust for the other options. If you want to quit the rat race, escape the middle class or be your own man, I find Rich Dad Poor Dad to provide very strong neuro-associations to support it.
Here are some you can use to grow your disgust for being an employee:
- Middle Class is gullible for paying for everyone
- Employees are enriching someone else while putting little in their own pockets
- Employees are enriching the government and fat cats politicians
- Employees are the equivalent of the nice guys who make everyone happy except themselves
Man Eats Man Perspective
In saying people should “mind their business” and “greed is good” Kiyosaki seems to be taking an individualistic, slightly “dog eat dog” kind of perspective. Mind you, greed is not bad per se and sometimes you gotta mind your business, but the bigger view should tell us a different story.
I believe instead the best businesses are built with an eye both to the bottom line and to adding value to the customers and people around.
Real Estate Focus
Rich Dad Poor Dad is heavily focused on real estate
Caustic Towards Education
There seem to be a hidden trend where Kiyosaki is hiding some anger towards the typical white collar well educated employee. I understand where that is coming from as I sometimes feel the same, but you gotta move beyond that. Education, even university education, is not the antithesis of entrepreneurship, risk and hard work. As a matter of fact, I would advise to get that degree which will make your risks safer: whenever you fail or whenever you need a degree make it easier for you to get a job and rebuild some wealth to start afresh.
Criticism of Rich Dad Poor Dad
Robert Kiyosaki has drawn plenty criticism for his Rich Dad Poor Dad series (Kiyosaki himself replied to John T. Reed, one of the harshest critics). DeMarco in The Millionaire Fastlane says Kiysaoky got rich selling advise, but not using his advise, which automatically makes him a phony.
However, I find The Millionaire Fastlane and Rich Dad Poor Dad to be very complimentary books in that they reject the salaried employees lifestyle and propose a different one of hard work and independence.
My Personal Take
To me, the fact that Kiyosaki presents his two dads as real but nobody found any evidence of it burned the author’s credibility and reputation.
I was tempted to down-rate the book. But then I reminded myself I read to tease out great insights, not to criticize.
The fact Kiyosaki lied and might not be the most ethical person (he’s also a friend of Trump) does not cancel the insights from Rich Dad Poor Dad. As a matter of fact, I wish part of my family could understand the so simple and yet so transformative power of Assets VS Liabilities and in reducing your expenses.
The concept of having to start 10 businesses to be successful also hit me like a brick. I used to think start ups were silly and for silly people because, well.. 9 out of 10 fail, why would anyone take that sort of risk, it’s just silly.
So when I heard Kiyosaki saying it only means you gotta start 10 businesses, well… I was blown away in a major “aha moment”.
Overall, I would highly recommended Rich Dad Poor Dad. Get it on Amazon.