Without a doubt, Rich Dad Poor Dad has become one of the most controversial personal finance books of modern times. Some people have praised it as the revolutionary how-to guide for creating ultimate riches through passive income. Others despised what they read because Kiyosaki challenged the conventional system for how people make a living and live their lives.
When was the last time you were told that going to college and becoming an employee for someone else for the next 30 years is a terrible plan? Or that the only reasons you became an employee in the first place was out of your own fear and greed of money? Or that your house is NOT one of your greatest assets?
Rich Dad Poor Dad is NOT a book that will explain to you what a 401k or an IRA is. In fact, it will try to discourage you from putting money in your retirement account at all. Instead, Rich Dad Poor Dad offers you something completely different – it will make you think! It will challenge you to reconsider what you’re doing with your money, life, and what you’re doing to reach your maximum earning potential!
The Beginning of the Rich Dad Poor Dad Dichotomy:
It is my belief that one of reasons why Rich Dad Poor Dad was such a success was due to the nature in which it was written. Most personal finance books read like an encyclopedia – they explain everything to you a series of facts. Rich Dad Poor Dad is more like a story. Most of it is a narrative told from Kiyosaki’s autobiographical perspective.
Chapter 1 begins in the 1950’s with Kiyosaki and his best friend Mike going to work for Mike’s Dad for 10 cents an hour. Despite being a high-school drop-out, Mike’s Dad is a very successful business owner. After only a few short weeks, Kiyosaki is angry, ready to quit, and confronts Mike’s Dad! Mike’s Dad is pleased by this discouragement, and thus begins Kiyosaki’s lessons from Rich Dad.
“Job is an acronym for Just-Over-Broke” (p. 122)
Rich Dad teaches Kiyosaki and Mike that most people never reach their full potential because of fear and greed. He makes an example of “Mrs. Martin” and several of his other employees by explaining how they live in ignorance fueled by their own fear and greed. Rich Dad’s lesson is simple: “The poor and middle class work for money. The rich have money work for them” (p. 22). Throughout the rest of Rich Dad Poor Dad, Kiyosaki will refer to this system of fear and greed as the “rat race” (p. 55) (He even creates a board game by the same name to use as a teaching tool).
Unfortunately, the “Poor Dad” in the story is Kiyosaki’s own real father. Poor Dad or Educated Dad as he sometimes calls him was an academic who worked for the government. Poor Dad encouraged young Kiyosaki to go the traditional route that most parents encourage their children to follow – do well in school, go to college, get a job, be a good employee, and maybe retire in 40 years.
This dichotomy between Rich Dad Poor Dad will be very instrumental throughout young Kiyosaki’s development and will shape the decisions he makes as an adult.
Lessons in Assets and Liabilities:
Unfortunately, Poor Dad goes on to lose his job, blame others for his failures, and die in debt. Rich Dad goes on to be even more successful than ever. The older Kiyosaki becomes, the more and more he chooses to live by the lessons of Rich Dad. Kiyosaki learns that the goal is not to become “rich” but to become wealthy as given by the definition of R. Buckminster Fuller, “Wealth is a person’s ability to survive so many number of days forward” (p. 70).
“There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.” (p. 5)
This is a pivotal lesson in Rich Dad Poor Dad. Kiyosaki teaches us:
• “Rich people acquire assets. The poor and middle class acquire liabilities they think are assets.” (p. 46)
The difference between these two things is paramount:
• Assets put money in your pocket. Liabilities take money out. (p. 48)
As common sense of an explanation as that may sound, Kiyosaki spends many pages in Rich Dad Poor Dad illustrating how the poor and middle class misunderstand this concept:
• The poor and middle class focus only on increasing their income. They then use it to buy more liabilities. And when they have too many expenses, they again try to make more money. This is the very essence of the rat race.
• By contrast, a wealthy person buys “assets”. Assets can be real estate, stocks, bonds, notes, intellectual properties – anything that will generate more income (Rental income, interest, dividends, royalties) for them each month. (p. 53)
• This is point in Rich Dad Poor Dad where Kiyosaki makes his infamous “a home is not an asset but a liability (p. 61)” claim. By his definition, your house does not put money in your pocket that you can physically use each month. Rather, it takes money out because of the mortgage. Thus it is a liability.
Introduction to the Concept of Passive Income:
Introducing the World to the theory of collecting assets that will create income is how Kiyosaki became associated with the concept of passive income. He goes on to describe how he especially focuses upon assets that do not require his presence (p. 77):
• Income generating real estate
• Notes (IOU)
• Anything of value that is market ready
Since Rich Dad Poor Dad’s publication, a legion of other websites and books (including more from Kiyosaki) have expanded upon this concept and these methods.
“My highly educated Dad always encouraged me to work your way up the corporate ladder. My rich Dad said why not own the ladder?” (p. 88)
Kiyosaki considers taxes to be one of the ultimate expenses; so much so that he devotes the entire chapter to the subject. Kiyosaki explains how taxes have evolved over the years and how they are used to exploit those who do not understand them properly.
One of the differences between the rich and the middle class / poor is that they use the legal corporate structure to their advantage when it comes to taxes (p. 85). In summary, they use the laws as follows (p. 92):
• Business owners = Earn money, spend their money, then pay taxes on what’s left
• Individuals = Earn money, pay taxes on that money, and then spend what’s left
Kiyosaki Encourages Us to Learn:
A re-occurring theme in all Robert Kiyosaki books is to develop your Financial IQ and to continue learning the traits that will make you wealthy. He opens Chapter 5 by discussing how developing your Financial IQ will help you proposer greatly (p. 95). The reason for this is because Kiyosaki feels the most powerful asset we have it our mind (p. 100)”. He says that to get rich, we have to evolve beyond the “old ideas” and recognize new paths to wealth. To develop our Financial IQ, we must concentrate in 4 areas (p. 106):
1. Accounting – Our ability to read and understand financial information
2. Investing – The science behind finances
3. Understanding the markets – The science behind supply and demand
4. The law – The rules of the game and how they apply to what we do
In Chapter 6, Kiyosaki continues this discussion with one of my favorite stories from Rich Dad Poor Dad:
• A young female reporter from Singapore tells Kiyosaki she wants to be a best-selling author like he is.
• Kiyosaki recommends she take a course on selling. The reporter is appalled! Why should she “lower herself” to becoming a salesman when she is a well-educated writer?
• Kiyosaki points out that he is not a best-“writing” author. He is a “best-“selling” author. The girl is not amused by the lesson. (p. 121)
Kiyosaki goes on to talk about how your employment should be used to help you acquire the skills you need to run your own business someday. The most reason why is to learn how to lead other men.
“If you’re not a good leader, you’ll got shot in the back, just like they do in business” (p. 122)
Rich Dad Poor Dad explains that you don’t need to be highly technical or specialize in any one specific thing. You just have to know a little bit about a lot. There are plenty of other smart people you can hire to work with you and make a part of your team (p. 129).
Overcoming Obstacles and Getting Started:
Rich Dad Poor Dad concludes with Chapter 7, 8, and 9 discussing some of the common complaints and excuses people have about going down this path. Kiyosaki summarizes them as fear, cynicism, laziness, bad habits, and arrogance (p. 131). He then gives us some words of wisdom and 10 tips for implementing these lessons into our own lives.
What Rich Dad Poor Dad Means to Me:
I was luck. This book came out at just about the same time I was finishing college and beginning life as a young adult. And like most young adults, I thought that the goal was to become “rich”. I thought that having a big house, nice car, a boat, vacation homes, etc all were signs of being rich. And like most people, I was wrong.
I remember referring back to the section on assets and liabilities many times. The concept was so simple. All those things I thought you get when you’re rich were really only trophies – they were things Kiyosaki would consider to be liabilities.
What I really should be focusing on are things that will make me money, especially those things that could generate wealth while I sleep – passive income!
As I started my first job out of college, my goal would not be to get promotion after promotion so I could simply increase my income. My goal should be to learn! Learn how to lead other men, learn how to work with customers, and learn how to run a business.
Developing my own Financial IQ and understanding of money would become a lifelong passion. I found myself naturally gravitating towards reading anything financial – knowing good and well that it would benefit me to learn more about the subject.
To this day I still screen most of my purchases according to the lessons of Rich Dad Poor Dad. Will this purchase be for an asset that will make me more money, or will it simply be just another liability that will take money out of my pocket. To live by such criteria not only helps keep your expenses low, but it also shows you just how frivolous most of our wants really are.
Perhaps the greatest take-away from Rich Dad Poor Dad was the “idea” of passive income. It became like an addiction for me. I understood that stocks could make a person rich while they slept. I could have surmised that real estate would do the same as Kiyosaki is obviously a big fan of the real estate market. But what else would fit the Rich Dad Poor Dad model? How could I use this formula to create a perpetual stream of income the way that Kiyosaki had done with real estate? In a lot of ways, you might say that Rich Dad Poor Dad was the seed for developing this blog and many of the ideas we explore today.
I don’t fully agree with everything in Rich Dad Poor Dad or that Kiyosaki preaches. I went to graduate school. I save money for retirement in a 401k. Rich Dad Poor Dad teaches you to develop your own mind and draw your own conclusions about creating wealth. It is only natural that not everyone will agree on the path.
About the only criticism I had of this book was the way in which Kiyosaki portrayed his own father. Although he never mentioned any ill-will towards him, Kiyosaki clearly paints Mike’s Dad and his own father at two polar extremes – often times with Kiyosaki’s real Dad on the short end of the stick. And although Rich Dad’s lessons may have ultimately been better, I could not think of honoring the memory of my own father (or my son to me) in this manner. However, this is only my personal opinion on the matter. I do not know nor claim to know the full history behind Kiyosaki and his father’s relationship. Kiyosaki does seem to make some redemption towards the end of the book by discussing how Educated Dad helped develop his sense of compassion – a characteristic that made Kiyosaki into “a socially responsible teacher who is deeply concerned with this ever widening gap between the haves and the have-nots” (p. 129).
Obviously (as you can tell by the analysis within this post), I would recommend that anyone read Rich Dad Poor Dad. The story is interesting, entertaining, and very easy to understand. Above all else, the lessons are vital and may change the way you think about creating and spending your money. For that reason alone, I would give it a try!
Readers – Who has read Rich Dad Poor Dad? Did you love it? Hate it? Did you find the advice practical? Even if you haven’t read it, what do you think about the concept of building “assets” that will create multiple streams of perpetually generating income?
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