Not too long ago, I wrote a post called “Are We Fools For Saving Our Money?” The inspiration for it came from several themes I read in the book “Unfair Advantage: The Power of Financial Education” by Robert Kiyosaki. Although we explored both sides of Kiyosaki’s opinions, I felt as though there was still quite a bit of the book to review and I wanted to do it justice. So here is my book review.
In case you’ve never read anything by Robert Kiyosaki, here’s a brief overview: Take on massive amounts of debt, don’t save your money, and the future of our economy is in deep trouble! Now why in the world would I recommend reading a book like that?
Because it reminds me that there is more than one way to become independently wealthy! Robert Kiyosaki, best known for writing “Rich Dad, Poor Dad”, proves that you can obtain great wealth by using unconventional strategies. Although I may not necessarily agree with all of his advice, it still intrigues my curiosity. Plus – he makes A LOT more money than you and I, so we should probably listen!
Love him or hate him, Robert Kiyosaki’s books are very popular because they are easy to follow and very “in your face”. They do a great job of convincing you that anyone can do what he does and that you’re a fool for not following his principles. And who wants to be a fool?
Don’t Be a Monkey – The Intro:
The Introduction starts out in exactly this “you’re a fool” fashion. Entitled “How to Catch a Monkey”, it describes how hunters catch monkeys by filling the holes with fruits and nuts. When the monkey sticks his hand in the hole to get the fruit and nuts, he gets his hand stuck and is thus caught by the hunters.
Guess what? That’s a metaphor for you and me – we’re all the monkeys! We’ve been taught by society that wealth can only be generated one way (through hard work), and then we get stuck in the process and can’t escape.
Kiyosaki then goes on to make the following other criticisms:
• In 1971, President Nixon took the U.S. off the gold standard. Ever since then, the U.S. has lost 95% of its purchasing power. In essence, everyone all the savers became losers (p. 3).
• The gap between the rich and the poor will continue to rise between 2010-2020 (p. 5).
• U.S. inflation and debt will continue to rise as long as our government continues to remedy the problem by printing more money (or counterfeit money as Kiyosaki calls it) (p. 7).
It is because of this pessimism about the U.S. future that Kiyosaki makes the statement that “A retirement plan, such as a 401k, is the worst way to invest” (p. 18). He believes that any earnings you make will be eroded by the turbulence of the global economy, taxes, and inflation.
Knowledge – Chapter 1:
If there is one thing that I agree with Kiyosaki about, it’s that people need to be more active in initiating their own financial education. Specifically, he divides up financial education into the subcategories of history, definitions, taxes, debt, and that there are two sides to every coin.
Another point Kiyosaki makes in this chapter has do with one of my favorite board games: Monopoly. He says that in Monopoly, the greatest lesson is not that you get $200 every time you go past go, it’s that:
• Four green houses equals one red hotel (p. 32)
Why is that important? Because this action teaches you to maximize your cash flow potential. You could wait to “collect $200” which he equates to waiting for payday or for capital gains to increase. But when you build hotels on the Monopoly properties, that’s when you make your real money. Suddenly, all the other players start giving you their money, and often! Kiyosaki equates this lesson to how real estate works in real life (p 44).
Taxes – Chapter 2:
The lesson of this chapter is that you need to learn about how taxes will affect your cash flow. More importantly, you need to learn how to avoid them. Using his “Cash Flow Quadrants”, he again makes you feel like a fool for being a regular employee or small business owner. He then shows the legal methods that corporations and investors use to avoid paying taxes.
The most notable highlight of this chapter pertaining to traditional investing is the statement that “a 401k if for people who plan on being poor when they retire” (p. 78). This is because, by design, taxes are paid on a 401k when the money is withdrawn during your elder, retired state. Therefore, for this to be a benefit, you’d have to make LESS income during retirement than you do right now. Kiyosaki does not understand why anyone would want to make LESS money the older they get. He certainly doesn’t!
Debt – Chapter 3:
Kiyosaki resumes his rant about the U.S. printing counterfeit dollars since 1971 to pay its expenses and debt (p. 91).
He then launches into his personal success with real estate and learning how to become comfortable with massive amounts of debt (p. 100). He terms this type of debt “good debt” because it is used to generate monthly income. This is different from “bad debt” where you take out a loan for something that will not bring you monthly income – like a car or house (yes, he does not consider your house to be asset).
The story is then complimented by an example of how he purchased a 144 unit apartment complex for $1 million dollars while paying zero taxes (p. 105). Would you roll the dice on a debt this large?!
Risk – Chapter 4:
Once more, pessimism about the future of the U.S.: “If the world does not want our debt, the Fed will simply print more money (p. 125).” Unfortunately, if this continues to happen, it will raise inflation, de-value the dollar, and that will be bad news for anyone who invests in a 401k.
The following other criticisms are made of 401k’s:
• “True” diversification is too low, returns are inconsistent, fees are too high, and there is little hope to beat the average market return (p. 133).
• You wouldn’t drive a car without insurance? So why do we buy stocks without buying options as an insurance policy (p. 138)? This point is then complimented by an intriguing example of how hedge funds use this technique (p. 159).
• Stocks (or paper assets) are just one asset class and are by far the riskiest. True diversification comes from owning all four asset classes: Paper assets, businesses, real estate, and commodities (p. 150).
Compensation – Chapter 5:
The lesson of this chapter is to remember that “more money” doesn’t make you rich (p. 171). Think of your finances like a company balance sheet:
• The rich are rich because they focus on their assets (properties that will make them money)
• The poor and middle class focus on their expenses and liabilities (things that do not make them any money and simply takes money out of their pockets).
This has always been one of the greatest lessons I’ve taken from Robert Kiyosaki books. Having a bigger house, cooler car, designer clothes, or whatever will not make you rich. Owning properties, a business, or equities that send you money every month will make you rich, and this is the secret that rich people have been using for a very long time! Do you see the difference?
He concludes that we must abide by three laws:
1. You must give to receive
2. You must learn to give more
3. Leverage the power of compounding financial education
Summary / Final Thoughts:
If you liked “Rich Dad, Poor Dad”, you will find this book to be very similar but with more updated content. Some new features include commentary by Kiyosaki’s wife Kim (also a real estate mogul) as well as lots of other guest authors and experts. Unlike “Rich Dad, Poor Dad”, he also includes several mathematical examples to help illustrate his arguments.
Although I may not believe I would be as successful in real estate investing as Kiyosaki, I do recognize the principles behind his lessons. When reading anyone’s financial advice, it’s not so much important that you follow exactly what they do, but that you apply the fundamentals of the techniques to investment methods at your level of skill.
Obviously I like this book and would recommend reading it. It’s a quick read and not overly complex or technical. Plus it’s a great break from the traditional advice that you’re probably use to hearing. For that reason, I’d give it a shot!
1) Book Review: “Rich Dad, Poor Dad” by Robert T. Kiyosaki and Sharon L. Lechter
Photo Credit: Amazon.com