Rich Dad Poor Dad

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Robert Kiyosaki’s Rich Dad Poor Dad (1997) is an educational story that contrasts the mindsets of the rich and the poor. The Poor Dad is the main character’s biological father, who works as a college professor. The Rich Dad is his mentor, who is a small business owner. The two dads are exemplary of different lifestyles and approaches to money.

The author is the protagonist in the story. His Poor Dad teaches him to go to school, get good grades, obtain a job, and work hard. His friend from school, Mike, has a Rich Dad who becomes the main character’s mentor.

In Hawaii, the mentor hires both nine-year-old boys to work for him in his restaurant in 1956. He pays them very little, but he teaches them a lot. He gives them lessons in a financial wisdom that their school and the Poor Dad fail to teach. The first lesson is that poor people work for money whereas rich people make money work for them. The Poor Dad mentality is to spend a lifetime working to generate a cash flow that will hopefully cover expenses. The Rich Dad mentality is to buy assets that generate enough cash to live a financially independent life without having to work a traditional job. The second lesson relates to the importance of financial literacy. Rich Dad teaches that assets make money and liabilities take money. He emphasizes the need to learn this simple difference and to focus on accumulating assets while avoiding liabilities. He indicates four important areas to learn about for financial success. These are accounting, economics, investing, and tax law.

Rich Dad instructs that people should pay themselves before paying others. For example, the rich buy assets and then pay taxes, banks, and so forth. Rich Dad stresses the importance of creating investments and not relying on others for this skill. To do this, he teaches that the rich learn how to find opportunities others miss, how to raise money, and how to organize people to leverage investment opportunities.

Rich Dad emphasizes that the rich take jobs based on what they can learn, not on what they can earn. Since money is elusive but education is permanent, it is wiser to take employment that will enhance education more than a bank account.

Rich Dad encourages the boys to avoid the five obstacles that commonly deter people from building wealth. First among these is the fear of lost investments, which keeps poor people from accumulating assets. Second, the poor become downcast and fail to see the opportunities available to them. Laziness keeps poor people busy doing unproductive things to disguise their slothfulness, whereas rich people work on the few activities that produce the greatest results. Poor people consistently do the same things, and these are the bad habits that ensure they remain poor. The rich think about their lifestyle and adjust their routine to yield better financial results. Arrogance, which Rich Dad defines as ego plus ignorance, keeps poor people impoverished. The antidote to poverty is a solid financial education.

Rich Dad offers the boys some tips to follow for financial success. He suggests they think of a good reason to get rich. Just wanting to be rich is not strong enough motivation to sustain an individual when the difficulties associated with wealth arise. Rich Dad instructs them to spend wisely every day and choose friends carefully, as both decisions will have a major impact on their financial results. He encourages the boys to learn and implement one new strategy at a time. For example, they should first learn about real estate, then stocks, then bonds, and so on.

The key sights for “Rich Dad Poor Dad” book is:

  1. Formal education does not teach what is necessary for building wealth. It is important to learn financial literacy through self-education.
  2. Too many people misunderstand the difference between assets and liabilities. Simply put, assets generate income while liabilities require expenses.
  3. The house a person lives in is not an asset. Its mortgage, insurance, taxes, and upkeep classify it as a liability.
  4. The biggest liability in life is a mindset that keeps someone stuck in traditional thinking. The greatest asset in life is a modern financial IQ.
  5. At one time, factory production meant that capitalist manufacturers owned society’s wealth. Today, it is information that makes people wealthy.
  6. Wealth is a person’s ability to live comfortably without having to work. People are wealthy when their assets generate more income than the expenses their liabilities require.
  7. Rich people buy luxuries using money earned from their assets, not from the money earned on their jobs.
  8. The four ways to work for earned income are to work for others, be self-employed, own a business, or make investments.
  9. Working for others or being self-employed requires a continuous exchange of time for money. Owning a business or investing is how rich people build wealth.
  10. The three types of income are earned passive, and portfolio. Poor people focus on earned income whereas rich people focus on passive and portfolio income.
  11. The two best ways to generate income are through real estate investing and through the stock market.
  12. Specialization is for people focused on earned income. Rich people dabble in different areas of the business to broaden their potential for passive income.
  13. Some people have no problem making money. The problem is how they spend it.
  14. Fear and ignorance are the main causes of poverty, not the economy or the government.
  15. Rich people find mentors, take classes, and learn from other rich people. Since wealth building is not a secret formula, they identify other rich people and emulate their habits.

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