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PDF Summary:Rich Dad Poor Dad, by

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Rich Dad, Poor Dad is one of the best-selling financial books in history, selling over 35 million copies. It’s based on advice the author, Robert Kiyosaki, received growing up from two different dads: a Stanford-educated PhD who followed a traditional career but was financially illiterate (the Poor Dad, his biological father); and a high school dropout who built a business empire employing thousands (the Rich Dad, his best friend’s father).

The two dads are really a parable for two different approaches to wealth: Poor Dad recommends getting a secure job with good benefits and retiring with a pension. Rich Dad recommends amassing assets that make money for you, becoming financially literate, and practicing independent thinking.

In this book, learn how to achieve financial independence, why it’s a terrible idea to see your home as your biggest investment, and how to overcome the biggest mental blocks to becoming wealthy.

(continued)...

  • If you get a pay raise, don’t upgrade your home or lifestyle if you don’t need to. This is the cause of the vicious cycle putting you in the rat race.

Lesson 4: Reduce Your Taxes

Kiyosaki advises that people set up corporations to deduct expenses without paying taxes. (Shortform note: This is a controversial suggestion because it can go wrong if you don’t strictly follow tax guidelines.)

Kiyosaki is strongly opposed to taxation. He notes that most people work from January to May just for the government, and argues that your biggest bully isn’t your employer or your manager, but the tax man.

He writes that rich people deliberately find ways to minimize their tax burden, and that this is one thing that separates them from nonwealthy people. Sometimes, in fact, wealthy people end up paying a lower percentage of their income than people in lower tax brackets.

Form a Corporation

Kiyosaki says that by forming a corporation, you can:

  • Deduct your business expenses from pre-tax money, rather than post-tax money.
  • Lower your tax rates, or delay paying taxes on some investments, like real estate sales.
  • Increase your protection from lawsuits: Corporations and trusts can protect assets from creditors.

(Shortform note: Kiyosaki doesn’t explain the advice in this lesson very clearly, and much of it doesn’t apply to most people’s situations. Interpreted incorrectly, it could get you into trouble. Thus, treat none of this as tax advice; seek a tax attorney for expert legal advice, and know that executing some of these techniques too liberally could be illegal.)

Lessons 5 and 7: Overcome Your Mental Obstacles

Even if you have Rich Dad goals, you still need to execute your plan. In these two lessons, Kiyosaki discusses several common mental obstacles that prevent people from forging ahead and pursuing their goals:

Self-doubt: Self-doubt or lack of self-confidence hold all of us back to some degree. Some are affected more than others. But success in the real world requires more than just intelligence and grades. You also need bravery—the tenacity to leave a stable income and pursue more ambitious goals. When you recognize a great opportunity, you must have the courage to chase it.

Fear: Fear of losing makes you play it safe and avoid opportunities that can have huge upsides and relatively low downsides. Kiyosaki notes that people who avoid failure also avoid success. Remember that failure will only make you stronger and smarter. Use your failure to inspire yourself to become a winner. Use this thinking to lower the perceived cost of failing.

There are other fears that can hold you back, as well. For example, a fear of ostracism will hold you back from having nonconsensus opinions. In financial matters, this can show up if you’re reluctant to buck the traditional way of handling your career and money, or if you’re driven to keep up with your peers and match their irresponsible spending. Instead, focus on yourself and your personal goals, and don’t fear what other people think.

Laziness: Some people feel developing financial intelligence is too much hassle. Consider, would you rather put in some hard work now and enjoy decades of a better life, or suffer through the rest of life? Counterintuitively, busy people are often the most lazy. They stay busy as a way of avoiding something they don’t want to face. For example, they work all day and on weekends to make ends meet, but they don’t confront bigger problems like how to build wealth or their family’s well-being. But forcing yourself to think about how to make more money is like exercising at the gym. The more you work your mental money muscles, the stronger you get.

Guilt for Wanting More Money: We’ve been raised to think of a desire for more money as bad. In reality, self-interest (generally, wanting to make your own life better) drives innovation and value for other people. This is the cornerstone of capitalism. Kiyosaki encourages you to embrace your greed: Money is empowering, and you have the right to design the future life that will make you happiest.

Arrogance: Arrogance is ego plus ignorance. Intelligent people welcome new ideas, since new ideas create synergy with other ideas. Don’t be afraid of people smarter than you. Find out how to get them to work with you. When you’re ignorant in a subject, recognize this, then educate yourself.

Lesson 6: Keep Learning

Kiyosaki notes that 300 years ago, land was the basis of wealth. Then factories and industry became the new basis for wealth. Today, it’s information. And by its nature, information changes more rapidly than land or manufacturing. So it’s as important to keep learning and adapting, quickly, as it’s ever been.

Developing financial intelligence pays off huge returns. If your mind is trained well, you can create enormous wealth. Further, knowledge compounds: Making yourself 1% better each day will launch you much further ahead of someone who doesn’t consistently work to improve themselves. And, learning can create a positive cycle: The more you learn and the more experience you get, the more money you make, which gives you more chances to learn.

Kiyosaki writes that financial intelligence is made up of four broad areas of expertise:

  • Accounting: This means basic financial literacy—how to read and understand financial statements.
  • Investing: These are strategies to use money to make more money. This is the creative piece of financial intelligence.
  • Understanding markets: This is how you understand supply and demand. Can you create something that the market wants? Does an investment make sense under current market conditions?
  • Law: This means using tax advantages and legal protection to build wealth more quickly and reduce risk.

Taken together, these four aspects of financial intelligence allow you to construct creative ways to solve financial problems, vet the ones that are more likely to work, and have the technical ability to execute them.

Lesson 8: How to Get Started

Finally, Kiyosaki ends with tips on how to get started on your path to building wealth:

  • Identify a deep reason you want to succeed. This is usually a combination of “wants” and “don’t wants.” If you don’t have a strong reason, you won’t make it because it will feel like too much work.
  • Actively choose to be rich and think every day. Ask, what would a rich person do in this situation? Invest in educating yourself.
  • Choose your friends carefully. Consciously make an effort to learn from them. Don’t seek people for their money. Seek them for their knowledge. Find someone who has done what you want to do. Take them to lunch and ask them how they accomplished their goals. Ignore frightened people who always advise caution or are pessimistic. They drag you down.
  • Master a formula (a way to make money) and then learn a new one. Formulas lose their potency as they become more common. Keep reinventing yourself and finding new ways to create value.
  • Pay your advisors and brokers well. They provide valuable information and take time to educate you. Hire professionals who know what they’re talking about and have skin in the game. An attorney who personally invests in real estate will be more helpful for your real estate matters.
  • Buy assets that generate free money. Find a way to put in money and get it back, then get free money into the future. For example: Buy a cheap house with cash, use rent to pay it off, and the house now generates money forever.
  • Buy luxuries with income from assets only. Resist the temptation to spend any extra money you get. Do NOT borrow money to get the things you want. Focus on creating money.
  • Find your personal hero. Emulate their behavior. Learn how they make decisions, and how they got to where they are.
  • Give to others first, and it’ll come back many times over. This is true for money, a smile, love, friendship. Help someone sell something, and sales will come to you. Trust that reciprocity will work its way back.

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PDF Summary Shortform Introduction

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Rich Dad, Poor Dad has some advice that can be interpreted irresponsibly and lead to disaster.

  • Robert Kiyosaki advises people to start their own corporations and pay for expenses pre-tax. He implies that they should be legitimate business expenses, but doesn’t clearly define this.
  • He likes the Texan attitude: “if you’re going to broke, go big.” This can provoke disproportionate risk-taking for the uninformed.
  • Even if people follow his guidance, he always has plausible deniability with, “it’s not my fault you didn’t learn more and make better decisions.”

Robert Kiyosaki seems to lean toward the libertarian. He has standard anti-taxation, anti-entitlement, pro-gold-standard party lines.

  • For example: “The real world is simply waiting for you to get rich. Only a person’s doubts keep them poor.”

Again, despite its flaws, the book has useful things to say. So try to focus on the principles we’ve extracted and what you can take away.

Finally, Rich Dad, Poor Dad is obviously a book about making more money. Most people, whether they admit it or not, would like more money. More money can mean more available options, greater freedom, and less stress. One can...

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PDF Summary Introduction: Rich Dad and Poor Dad

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But the traditional thinking is still common. Rich Dad, Poor Dad aims to shake readers out of their current passive path and taking a proactive strategy to building wealth and working for their best interest. Figure out what to do with money once you earn it, learn how to keep people from taking it from you, and make the money work for you.

Rich Dad, Poor Dad explores differences between the two dads on a few levels:

  • Mindset: how responsible each felt for financial literacy and proactively making good financial decisions
  • Strategy: how they allocated their income among assets and liabilities, how they perceived risk
  • Tactics: how they set up their income to lower taxes, what investments they make

What Rich Dad and Poor Dad Say

Rich Dad and Poor Dad look at the world differently. Here are quotes and perspectives taken from throughout Rich Dad, Poor Dad that exemplify their different mindsets and approaches to wealth.

Poor Dad Rich Dad
Be employed by a company. Climb up the corporate ladder. Own the company. Own...

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PDF Summary Learning with Rich Dad

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After laboring for 3 hours over 3 weekends, Robert Kiyosaki gets upset and wants to quit. His friend is amused, since Rich Dad expected he’d want to quit, and wanted to meet afterward.

Before the meeting, Poor Dad advises the author to demand what he deserved - at least 25 cents an hour. If he doesn’t get the raise, Poor Dad counsels, Robert Kiyosaki should quit immediately.

Kiyosaki takes Poor Dad’s advice, and starts the meeting demanding more money, demanding to be treated better, threatening child labor lawsuits, and complaining the Rich Dad hasn’t taught him anything. Rich Dad replies: “Not bad. In less than a month, you sound like most of my employees.”

Rich Dad’s point of the exercise is this:

  • Most people accept jobs with lower pay than they deserve out of fear - fear of not paying their bills, of being fired, of not having enough money, of starting over. Fear governs their emotions around money, and they become a slave to working to make money.
  • Life pushes everyone around. Many people quit and let the pushing happen. Some get angry and push back, but in the wrong direction - against the boss, their job, their spouse, or the world. Others learn the...
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PDF Summary Lesson 1: The Rich Don’t Work For Money - Money Works for Them

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Cashflow Diagrams

To picture this, here’s a simple financial diagram from Rich Dad, Poor Dad on how cashflow and balance sheet relate to each other:

rich-dad-income-1.png

The top box is an income statement, measuring how much income you get in a period, and how much expenses you pay out.

The bottom diagram is the balance sheet. It shows how much in assets and liabilities you have. Assets are things that make money over time. Liabilities are something that spend money over time. (Shortform note: these are Robert Kiyosaki’s terms and don’t follow typical GAAP accounting.)

We’ll get more into distinguishing assets vs liabilities in the next section, but the main point here is that wealthy people use their Income to buy Assets that return more Income. Meanwhile, they minimize their spending on Expenses and buying Liabilities, to have more money to buy more Assets. Here’s what that looks like:

rich-dad-income-2.png

People who don’t become rich either spend all their income on expenses, or buy liabilities that increase their expenses but don’t...

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PDF Summary Lesson 2: Buy Assets, Not Liabilities

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*   (Shortform note: also, loading too heavily on your house concentrates risk on your local real estate market. And if you’re subject to groupthink, you’re more likely to think buying a house is a great deal precisely when it’s actually not.)
  • Many people buy a new house every number of years, each time incurring a new 30-year loan without really truly owning the house.

Shortform Explanation

Kiyosaki doesn’t address that people obviously have to live somewhere, and paying rent would also be an expense. And, typically, the monthly mortgage payment is lower than the monthly rent of the home, which is where people often get tripped up.

A proper analysis would compare the long-term outcome of these two options:

  1. the cost of buying a home, including the down payment, annual expenses, and likely appreciation of home value

  2. renting an identical property, increases in rental costs in proportion with home value appreciation, and investment returns of the extra cash from not buying a home (e.g. down payment) over time

But Rich Dad, Poor Dad isn’t great about these tactical details - one of its major failings. Going through the exercise, neither...

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PDF Summary Lesson 3: Reduce Taxes Through Corporations

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  • Say your corporation makes $100 in income. Your car is used for business, so the corporation pays $60 for the car. The corporation then has income of $40. After a 40% tax, this ends up being $24. This profit can then be distributed to shareholders as a dividend.

    • (In reality, this would be taxed at a 20% corporate rate and 20% personal capital gains rate, but I use 40% to better compare with the pre-tax situation above)

  • Here’s another way to phrase it: In the company, the $60, if it wasn’t spent on the car, would have been taxed as income. After the 40% tax, this is equivalent to $36. So it basically cost you $36 post-tax to get the car service, rather than $60 pre-tax, leading to a $24/$60 = 40% discount.

Again, be very careful with this. This isn’t a limitless buffet that you can transfer all personal expenses to. Make sure you understand what counts as a legitimate business expense and what creeps across the line to personal expenses.

Lower Tax Rates (allegedly)

From the book: “the income-tax rate of the corporation is less than the individual income-tax rates.”

Shortform Explanation

Superficially, this is true: in 2017 and before,...

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PDF Summary Lesson 4: Overcome Your Mental Obstacles

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Rich Dad says he like Texans, because “when they win, they win big. And when they lose, they lose big, and it’s spectacular. If you’re going to go broke, go big. Don’t admit you went broke over a duplex.” Even though the South lost at the Alamo, they handle failure fondly, shouting, “Remember the Alamo!”

(Shortform caveat: of course, taken to the extreme with an uninformed person, this can cause excessive risk taking and catastrophic losses.)

Fear of Risk

Don’t be afraid of turbulence or risk. “I’d like to, but I’m due for promotion in three months” is the classic excuse. There is always another carrot dangled ahead of you, and so there’s always a good reason not to do what you really want to do.

Fear of Rejection

Don’t be afraid of rejection. Fear of ostracism prevents people from having nonconsensus opinions. As it relates to finance, it’s in 1) not bucking the consensus traditional way of handling your career and money, 2) keeping up with the Joneses and matching spending. Focus on yourself and your personal goals, regardless of what other people think.

If you fear all of these things, you can still be rich. But it requires a wiser, more...

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PDF Summary Lesson 5: Keep Learning All the Time

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This doesn’t have to be difficult or intense. Robert Kiyosaki mentions jogging through his neighborhood to spot which houses were listed for sale for longer than others, and making low-ball offers for these houses.

The more you learn and the more experience you get, the more money you make, which gives you more chances to learn even further. The faster you can iterate your knowledge, the faster the returns compound.

Learn Broadly

Many people with great talent in their trade aren’t rich. They’re specialists and proud of it.

Often, they just need to learn and master one more skill to dramatically boost their income.

  • Analogy: How many people can make a better hamburger than McDonald’s? Most people would think so. Then why does McDonald’s make more money than they do? Because McDonald’s has mastered a business system, while most people focus on building a better hamburger.

Notable examples of underappreciated skills include sales, marketing, communication, negotiating, investing, people management, and financial intelligence.

  • Consider taking a pay cut to work at a firm where you’ll gain a critical orthogonal skill - like marketing at an ad...
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PDF Summary Lesson 6: How to Get Started

... They provide valuable information and take time to educate you.

Hire professionals who know what they’re talking about, and have skin in the game. An attorney who personally invests in real estate will be more helpful for your real estate matters.

Don’t short-change your brokers. Why would they want to hang around you if you’re not being fair?

You’ll be comfortable paying them better when you value your time and understand the value of what they give.

7. Buy assets that generate free money.

Find a way to put in money and get it back, then get free money into the future. Kiyosaki relates this to “Indian giving.”

Example: Buy a cheap house with cash, use rent to pay it off, and the house now generates money forever.

Sophisticated investors ask, “how fast do I get my money back?”

8. Buy luxuries with income from assets only.

You must resist the temptation to spend any extra money you get. This requires fortitude.

Do NOT borrow money to get the things you want. Focus on creating money.

9. Find your personal hero. Emulate their behavior.

Learn how they make decisions, and how they got to where they are.

When negotiating, Kiyosaki “acts with the bravado...

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