The premise: when growing up, author Robert Kiyosaki had two dads advising him: 1) a Stanford-educated PhD who followed traditional career thinking, was allergic to risk, and was financially illiterate (the Poor Dad, his biological father); 2) a high school dropout who later built a business empire worth many millions and employing thousands (the Rich Dad, his best friend’s father).
The Poor Dad represents the traditional view on work and money - go to school, get a good job and climb the ladder, prize stability over independence, buy a house, and spend money without a clear long-term plan.
The Rich Dad represents what was then a more contrarian view - work for salary if you have to, but aim for financial independence; have your money generate more money; and take calculated risks boldly.
Most people adopt the Poor Dad view of finances and life. Even worse, they let money control their life:
The rich don’t get rich merely by being paid higher salaries (though this is a great help). They get rich by owning things that make them more money.
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.
People who don’t become rich either spend all their income on expenses, or buy liabilities that increase their expenses but don’t add income.
The key to financial independence is having money that makes more money. You want your money to make enough money that you don’t have to work anymore.
The key is to buy things that generate income (assets). You do NOT want to buy things that lose money over time or incur large expenses (liabilities).
This is obvious...
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Rich Dad, Poor Dad is one of the best-selling financial books in history, selling over 35 million copies since its publication in 1997.
The book doesn’t teach the tactics of getting rich as much as it does the principles: the mindset and high-level strategies that distinguish the wealthy from the hapless.
Unfortunately, as many critics have commented, much of Rich Dad, Poor Dad is flawed. It’s not clear exactly how and when to apply the principles, and less discerning readers can follow the advice and get into trouble. Here are some caveats to set the advice in context.
Rich Dad, Poor Dad doesn’t engage on tactical details that would help people apply the decisions. Kiyosaki says these are out of scope of the book, and maybe details would alienate the popular reader, but it’s a poor excuse. Examples of useful questions to cover:
Growing up in Hawaii in the 1950s, Robert Kiyosaki had two dads:
Robert Kiyosaki got conflicting advice from both dads on how to manage money, career, and financial risk. Ultimately he saw more wisdom and results in Rich Dad’s advice, and followed in the Rich Dad’s path.
While Robert Kiyosaki might really have had two dads, the more important point is that the two dads are a parable for two types of financial thinking.
Spread across a few chapters in Rich Dad, Poor Dad, the author narrates his experience with Rich Dad learning the principles of money and work.
As a 9 year old, Robert Kiyosaki is rejected socially by the rich kids in his public school. He asks his dad, a teacher, how to get rich and make money, but his dad has no satisfactory answer.
He commiserates with his best friend Mike, the only other non-visibly-wealthy kid in the school. They start a misguided idea to melt down metal toothpaste tubes and mint their own nickels. Bemused, Robert’s dad (Poor Dad) suggests they talk to Mike’s dad (Rich Dad), who owns multiple local businesses and seems to be on a good path.
Rich Dad is busy, but meets with them early in the morning between his regular business meetings with his managers. Rich Dad has this dialogue:
With the narrative over, the rest of the book covers Robert Kiyosaki’s major lessons from Rich Dad.
Most people work 40+ hours a week to earn salaries. Many then take their earnings to 1) buy stuff they think will make them happy (but this is short-lived), 2) save the remainder in a conservative way.
While this ensures some degree of stability, it doesn’t make you rich. And working to earn a pension makes you financially dependent - let alone the risk that pensions won’t be funded decades from now, when you need it.
The counter-intuitive lesson here is this: the rich don’t get rich merely by being paid higher salaries (though this is a great help). They get rich so by owning things. No one on the Forbes billionaire list got there purely with a salary.
(As tech investor Sam Altman says, “You get truly rich by owning things that increase rapidly in value. This can be a piece of a business, real estate, natural resource, intellectual property, or other similar things. But somehow or other, you need to own equity in something, instead of just selling your time. Time only scales linearly.”)
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So how do you put your money to work for you? The key is to buy things that generate income (assets). You do NOT want to buy things that lose money over time or incur large expenses (liabilities).
This is obvious enough. But the most deceptive investments look like assets, but are actually liabilities.
In Robert Kiyosaki’s view, the most common mistake is buying a house as a primary residence, and considering it an asset and their primary investment.
(Shortform caveat: we consider this the worst chapter in the book. He doesn’t explain the advice clearly enough to be useful. The advice doesn’t apply to most people’s situations. And taken incorrectly, it could get you into trouble.
Treat none of this as actual tax advice; seek a tax attorney for real advice, and executing some of this too liberally is illegal.)
In Rich Dad, Poor Dad, Robert Kiyosaki is clearly strongly against taxation, saying things like:
Whatever your philosophical bent on taxation, the practical point is that the rich find ways to minimize their tax burden, sometimes paying a lower % of their income than lower tax...
More people have the potential to be happy, but common obstacles get in the way. People who overcome these obstacles get a huge advantage.
Self-doubt or lack of self-confidence hold all of us back, to some degree. Some are affected more than others.
In the real world, more than just intelligence and grades is required. Guts, chutzpah, balls, daring, tenacity, grit are different names for the factor that plays a huge role in success.
When you recognize a great opportunity, you must have the courage to chase it.
(Shortform example: a quote from Charlie Munger: “We read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.”)
Fear manifests in a lot of ways.
Fear of losing makes you play it safe and avoid opportunities that can have huge upsides and relatively low downsides. Control your fear of losing, money or otherwise. Everyone has fear of losing money, but you have to handle it properly.
Developing financial intelligence pays off huge returns. If your mind is trained well, you can create enormous wealth in what in the grand scope of things is an instant.
In contrast, an untrained mind can also create poverty that lasts lifetimes.
Robert Kiyosaki believes financial intelligence is made up of four broad areas of expertise:
Taken together, financial intelligence allows you to construct creative ways to solve financial problems, vet the ones that are more likely to work, then have the technical ability to execute them.
Consider that spending money on financial intelligence is like buying yourself life - you may save on years of working because of making the right decisions.
Great opportunities arise...
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Finally, we’ll end with tips on how to get started on your path to building wealth:
Find a deep reason you want to succeed. This is usually a combination of “wants” and “don’t wants.”
Examples: “I don’t want to work all my life. I don’t like being an employee. I hated that my dad missed my football games since he was obsessing about his career. I want to be free to travel the world when I’m young. I want control over my time.”
If you don’t have a strong reason, you won’t make it. It will sound like too much work.
Ask, what would a rich person do in this situation?
Invest in educating yourself.
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.
Don’t listen to frightened people who always advice caution or are pessimistic. They drag you down.
Funnily, rich people have friends who ask them for jobs or a loan, but rarely to ask them how they made...