This book is about the lessons Robert learnt about money, growing up with a Rich Dad (his best friend’s father) and a Poor Dad (his university educated father). It goes into why the poor are poor and how the rich handle their money differently. Show
👤 Who Should Read It?If you grew up with parents whose only income was from salaried employment and their only “asset” is their house, then it’s time to relearn a few things about money. Financial literacy isn’t taught in schools, but this book gives a good overview on how the rich can live without traditional employment. 🎓 The One Takeaway From This BookThe rich spend their money on income producing assets, which then fund their expenses. 📒 Summary & NotesThe book is broken down into 6 lessons that you need to know to start having your money working for you. IntroductionRobert had two Dads, one highly educated but poor and the other not highly educated but rich. His Rich Dad was actually his best friend’s Dad, who him and his friend convinced him to teach them about money. Robert got conflicting advice from both Dads which gave him the opportunity to decide who he should listen to. He decided to listen to his Rich Dad, and that made all the difference. Money isn’t taught in schools, it is generally up to the parents to teach their children about money.
People often stop themselves from getting rich by their mindset. Attitudes such as “money is the root of all evil” stop people from getting rich. Both his Dads had 2 different mindsets.
Robert chose not to listen to his highly educated Dad when it came to money. He decided to listen to his Rich Dad, which changed the rest of his life. How his life would have been different if he took the other road.
It is important to gain power over money and understand how money works. The alternative is you end up spending your life working for money instead of having money work for you. The Rich Don’t Work for Money
Most people stay poor due to fear and greed. Their emotions are ruling their decisions. Life has a habit of pushing you around, but often people think it is other people to blame rather than themselves. To teach the boys a lesson, the Rich Dad had the boys work in his grocery store for 10c an hour (which even then wasn’t much). They did this for 3 weeks before Robert got sick of it and went to ask for a pay rise. The Rich Dad made him wait half an hour before he got to talk to him.
The Rich Dad said he sounded like a lot of his employees who thought the only way to get paid more was to ask for a pay rise. Instead of giving Robert a raise, he made him work for free.
It seems to be the norm that people hate their jobs, yet they carry on working there. The reason is down to fear.
Rich Dad kept suggesting higher and higher hourly wages to see if they would bite. All the way up to $5 an hour, which in 1956 was more than most adults earned.
Instead of acknowledging their fears and finding a way to earn more money, they ignore their fears and just stay at their job.
Even rich people have a fear of losing money. They amass giant fortunes to avoid being poor, but then they fear losing it all.
People make up excuses for why they work, such as because they “love their job”. Then go on to say that “money is the root of all evil”.
If they were to acknowledge their fear of money and try to think of solutions to it, they would realise that getting a job isn’t the best way to make money eventually.
Even people who earn a lot of money can fall into the trap of fear and desire. It is common for lottery winners to waste all their money as soon as they get it.
People keep earning higher and higher salaries, and they end up trapping themselves. They might not enjoy their job, but they are too afraid to leave it.
By not working for money, they were open to new opportunities to earn a living. They did this by getting the used comic books from the store they were working at and then opening a library and charging 10 cents for a 2-hour reading session. Comics cost 10 cents each in those days, so it was a bargain. Kids could read 5 comics in that time. They got Mike’s sister (Rich Dad’s daughter) to work at the library for $1 a week, so they were earning money without them physically needing to be there. They’re learnt how to make money work for them.
Why Teach Financial Literacy
Robert retired in 1994 at 47.
You need to grow your assets so they are large enough to grow by themselves, as well as provide an income to cover your expenses and more.
This is why lottery winners tend to lose all their winnings. They haven’t built up the financial intelligence they need to manage their finances.
Often those that do manage to keep their money find that it is lost when they pass it down to the next generation, as they didn’t learn to be financially literate.
Rule #1, learn the difference between an asset and a liability.
The middle class tend to think that their house is their biggest asset. An asset is something that puts money in your pocket. Unless you are renting out your property, your house will be costing you money.
This is the cash-flow pattern of an asset:
This is the cash-flow pattern of a liability:
This is the cash-flow pattern of a poor person: This is the cash-flow pattern of a middle-class person: This is the cash-flow pattern of a rich person: These are oversimplified but it shows how the flow of money is different between the poor, middle class and rich.
Schools teach you to get good grades and get a well respected job like a doctor. However, doctors rarely earn that much having to pay hundreds of thousands in school loans as well as expensive malpractice lawsuits.
Those that do well at school and go on to do well academically and professionally can still lack financial literacy.
People tend to upscale their life as their salary increases. Whether it be a bigger house or a new car. They are constantly trying to keep up with the Joneses. The problem is how they choose to spend their money.
If you want a bigger house that isn’t a problem but you need to realise that you are buying a liability not an asset.
You should work on buying more cash generating assets that then pay for the house. Why the Rich Get Richer
Why the Middle Class Struggle However, for the middle class treat their home as their biggest asset and rarely own any income producing assets.
The middle-class lack financial education, which is why they end up staying in the Rat Race.
When you work as an employee, you generally work for 3 people.
R. Buckminster Fuller has a good definition for wealth:
Once your monthly cash flow from your assets match your monthly expenses you will be wealthy.
Mind Your Own BusinessMake sure you are always working on your own business, which is the business of building your asset column.
Everyone thinks that McDonald’s are in the hamburger business, when in fact they are in the real estate business.
The education system trains people to get a job, not to go into business. Everyone should be working on their own business, even if they have a job at the moment. You need to work on building your asset column and reducing your liabilities’ column.
It is very difficult to get wealthy and escape the rat race if you are working for someone else.
These are the assets that you should look to grow.
You should only acquirer assets that you have a personal interest in. There is no point in buying real estate if you don’t like it. This is also good advice when it comes to any investing. You need to understand the business before you can invest in it. This is why Warren Buffet is so successful.
You should be building your asset columns so that the money they generate can be used to live off and the excess goes to buying more assets. You shouldn’t be selling assets to pay for your lifestyle.
This line paragraph reminds me of a Harry Enfield sketch where a couple are always flaunting their wealth, saying “we are richer than you”. On one occasion, while staying in an expensive hotel, they ask a casually dressed man how big his house is. He replies, which one? The one are in now or one of my other houses. The rich don’t waste their money on expensive items to look rich. They spend their money on accumulating assets that make them richer.
The History of Taxes and the Power of Corporations
Corporations pay considerably less tax than salaried employees. As an added benefit, anything that is considered for the business can be classed as an expense and gets deducted from pre-tax income.
Corporations have the means to avoid paying as much tax as individuals. For individuals, tax is deducted before they get paid, there isn’t much they can do about it. Corporations, however, have plenty of options to use that money before it can get taxed.
People often spend their income rather than use it to buy money producing assets such as stocks. Once you have gained enough assets that the income covers your expenses you are financially independent.
Financial IQ is made up of knowledge from 4 areas:
The Rich Invent Money
This is true for so many things. Many people have ideas of creating a blog or starting a YouTube channel but never get around to it. Then times passes and they wish they had started it months ago.
At the time of writing (November 2022) many countries are going into a recession and in tech many are losing their jobs.
Robert created a game to teach people financial IQ. It is called CASHFLOW. It is quite expensive for a game but if you consider it a financial education it is actually quite cheap.
The rich use their business to buy things from pre-tax income. By the time the government gets to tax the profits there is less to tax. It takes a lot longer to save money when the government is taking 50% in taxes.
The rich also get the opportunity to invest in things that general people can’t. These investments aren’t open to the public because they are expensive and risky. However, for the rich it isn’t much to pay considering the potential gain.
Most people never win because they are too afraid to fail. When we are in school we learn that mistakes are bad. If you fail an exam once it can screw you up for the rest of your academic life.
There are two different kinds of investor:
To be the second type of investor you need these 3 skills.
Work to Learn Don’t Work for Money
School and the traditional advice is always to specialise. It reminds me of this quote:
Warren Buffet and Charlie Munger always say it is good to know a little about a lot of different subjects. They are constantly reading and building up different mental models in their heads.
There are very few salaried jobs in the world that can make you wealthy. A company is only going to pay you enough to keep you working there.
Over my career I have made my employers millions, however my pay rises and bonuses were always disappointing.
If you continue doing your current job for another 5 years is it going to get you closer to where you want to be in life? Unions exist to protect employees that have very specialised skills. Pilots and train drivers need unions because they have very specialised skillset that is useless outside of those areas.
If you have to work for someone else because you haven’t built up your asset column yet then work somewhere to learn rather than to earn.
Overcoming ObstaclesYou need to overcome these obstacles in order to get rich. Overcoming Fear
It is easier to get rich if you start investing in your 20s than it is in your 30s. That is the power of compound interest.
The rich take bigger bets but win big as a result. Overcoming Cynicism
When everyone else is selling and the market is seemingly at rock bottom this is the best time to buy. If you still believe in the companies you are investing in then everything is suddenly on sale.
Overcoming Laziness
People are busy at their day job and use it as an excuse not try and build their wealth.
Overcoming Bad Habits
Robert would pay himself first by investing his money in buying assets before he paid people he owed. He still paid his taxes and creditors but he did it by finding ways to earn more money.
Overcoming Arrogance
Getting Started
Our culture has educated us to believe that the love of money is the root of all evil. Education has told us how to learn a professions so we can work for money but not how to make money work for us.
1. Find a reason greater than reality: the power of spirit
2. Make daily choices: the power of choice
There is nothing wrong with buying index funds but it isn’t going to give you the returns to make you rich. Warren Buffet goes deeply into any company he invests in and doesn’t invest in anything he doesn’t understand.
3. Choose friends carefully: the power of association
If everyone is talking about it, it is already too late. Bitcoin didn’t make the news until it was at its height just before it dropped.
This is why dollar cost averaging (investing periodically) is usually better than trying to time the markets. 4. Master a formula and then learn a new one: the power of learning quickly
5. Pay yourself first: the power of self-discipline
People who pay themselves first:
People who pay everyone else first:
6. Pay your brokers well: the power of good advice
Naval Ravikant, said he set an aspirational hourly wage of $5,000 an hour. Anything less than that then he would get someone else to do it as his time was worth too much. My aspirational hourly wage is not that high but I won’t go out of my way to return something that only cost me a few dollars.
7. Be an Indian giver: the power of getting something for nothing
I did this when I first invested in crypto. I put money in and then took it out leaving the profits. The profits then went on to make me more money with no risk to my initial capital.
8. Use assets to buy luxuries: the power of focus
9. Choose heroes: the power of myth
Find people who are doing what you want to do who make it look easy and learn from them. 10. Teach and you shall receive: the power of giving
Some To Do’sStop doing what you’re doing
You have got where you are from doing what you are currently doing. If you want to get wealthy and improve other areas of your life you are going to need to do something different. Look for new ideas
Find someone who has done what you want to do.Find a mentor who has done what you want to do and if you can take them to lunch and learn from them. Failing that many of the greats have written books explaining how they do what they do. Learn from them. Take classes, read, and attend seminars
Make lots of offers
Jog, walk, or drive a certain area once a month for 10 minutes
Shop for bargains in all markets
Look in the right places
Look for people who want to buy first. Then look for someone who wants to sell
Think big
Learn from history
Action always beats inactionMost people stay poor because they are too afraid to take a chance. Final Thoughts
You can buy the book Rich Dad, Poor Dad on Amazon. Robert mentions his game CASHFLOW quite a bit in the book as way to learn how to get rich through playing a game. What is the summary of Rich Dad Poor Dad?Rich Dad Poor Dad is about Robert Kiyosaki and his two dads—his real father (poor dad) and the father of his best friend (rich dad)—and the ways in which both men shaped his thoughts about money and investing. He says that his poor dad went to Stanford and earned a Ph.
What are the main points of Rich Dad Poor Dad?Here are seven helpful lessons you can apply from the book to your own life.. The rich make their money work for them. ... . Financial education is your greatest asset. ... . Don't work to earn money; work to learn. ... . Know the difference between assets and liabilities. ... . Reduce your spending as much as possible. ... . Reinvest the profits you make.. What are the six lessons in Rich Dad Poor Dad?Rich Dad Poor Dad Lessons. Lesson 1: The Rich Don't Work for Money.. Lesson 2: Why Teach Financial Literacy?. Lesson 3: Mind Your Own Business.. Lesson 4: The History of Taxes and The Power of Corporations.. Lesson 5: The Rich Invent Money.. Lesson 6: Work to Learn—Don't Work for Money.. What happens in chapter 1 of Rich Dad Poor Dad?Chapter 1: Rich Dad, Poor Dad
In the first chapter, the author describes how he and his best friend, Mike, want to get rich and make money using the illegal method of creating nickels. Their plan was foiled by Mike's father or the rich dad.
|