A story about how to become wealthy
Rich dad poor dad
“For most people, the reason they don’t win financially is because of the pain of losing money is far greater than the joy of being rich.”Robert Kiyosaki
Rich dad poor dad is a book based on the story of Robert Kiyosaki who describes his two dads: a biological father and the father of his friend Mike. Robert, his own father is a highly educated man who has a steady 9-5 job, however, in Robert’s eyes, he is the living embodiment of a poor man. He explains that he sees his father this way because of his mindset of not having enough, having a single source of income due to an aversion to risk, and therefore working all of his pre-retirement years instead of letting money work for him.
Mike’s father is seen by Robert as his rich dad. Mike’s father is a college dropout who seizes opportunities and makes money work for him by having multiple streams of income. With these streams of income, he builds towards becoming (more) wealthy.
This book contains 6 important financial and wealth lessons that are explained through storytelling:
1. The rich don’t work for money
2. The importance of financial literacy
3. Minding your own business
4. Taxes and corporations
5. The rich invent money
6. The need to work to learn and not work for money
My personal reading notes
Robert first introduces the reader to both his dads: rich dad and poor dad. After he and his friend Mike try to make money and different ways, but fail to succeed, they become students of rich dad. The lessons about how to escape the rat race are though but very practical. Rich dad tries to explain to the boys how to take risks and see opportunities. He describes that the poor and middle-class stay poor due to the fear of risk which makes them stay in their 9-5 jobs. By having this risk aversion they aren’t willing to stay open to opportunity and will not build the different passive income streams that allow them to become wealthy.
Robert describes that our current education system does not teach us financial literacy. Terms like investments or assets will often not even pass the vocabulary in schools. Because of this people know how to make money but lack the knowledge of how to manage and grow money. Robert, therefore, views the educational system as primarily designed to create employees and not entrepreneurs.
He stipulates the importance of making money work for you i.e. having sources of passive income. From chapter 3 and onward he uses the terms assets and liabilities. This is part of the financial literacy that is not taught in schools but is super important. The rich become rich by investing in assets and keeping liabilities low. The poor do the reversed. The real measure for wealthy people is not how much money is made, but how much money can be retained.
“Most people simply buy investments rather than first investing in learning about investing.”
Assets vs liabilities
An asset is something that generates cash flows, appreciates in value, and has a market. Contrary, liabilities cost you money, won’t earn you anything, and shrink in value over a period of time.
Robert explains that, oftentimes, the middle-class mistakes liabilities for assets. When looking at their primary residence, for instance, the middle-class views this as an asset, whilst it is a liability (e.g. costs money and does not earn you money). It does not generate a positive cash flow and the value of a house can collapse.
“The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.”
This is different for rental properties. Although their value might also go down when focussed on creating a positive cash flow this should not mind. Robert promotes renting out properties as a way to become more wealthy.
Robert categorizes essentially all consumer goods as liabilities and suggests to only buy these when they can be bought with the money your investments make you.
The importance of corporations
Rich dad is quite clear about not being focussed on your employer’s business since it is not your business. You should strive to build your own business. A corporation is a very effective way to protect your assets. Rich dad dives into how corporations can be used to legally minimize taxes. This is because the structure of the middle class is to earn, pay taxes, and then spend whilst the rich, through their corporations, can earn, spend, and then pay taxes. Robert encourages you to learn more about finances like investing, accounting, and law to increase your financial IQ. Financially educating yourself is one of the most important things to do when you want to become wealthy. This is because knowledge can never be taken away from you, but can always be used to create more money.
“Illiteracy, both in words and numbers, is the foundation of financial struggle.”
Robert recommends being open to opportunities and taking risks. He believes that it is not necessarily always smart people who get ahead in life, often the adventurous and bold are the ones who get ahead.
Traits that hold us back
In the book, Robert talks about five traits of human beings that hold them back: fear, cynicism, bad habits, laziness, and ignorance. He states that it is normal to feel fear, however, it is how people deal with what they fear. The process of getting rich is heavily based on a person’s psychology and one should focus on the rewards and not the problems that need to be overcome. He states that he sees such great potential in every human being but the one thing that holds us back is our own self-doubt.
“Don’t be afraid of losing. Being broke is temporary, being poor is eternal”.
If you currently are not as wealthy as you would like to be, you must find a reason to motivate you which is beyond your current reality. If you keep doing the same thing you should not expect different results.
Robert also stipulates the importance to continue learning and picking the right friends in your journey to riches. You can learn immensely from friends by talking about money and ways to become more wealthy. So don’t hesitate to look for friends who are open about the topic as well. The stigma around money will not educate you.
My overall thoughts
The book is definitely one of the classics in the field of finances and wealth management. The book is great to get a different perspective on finances and becoming wealthy. The storytelling type of style makes the book captivating and relatable. It is thought-provoking and challenges a lot of common money and wealth-related notions.
Whilst this book is great in giving a different perspective it does lack practical and actionable suggestions. Therefore, I suggest reading this book with some other finance books in order to collect the full picture.
After reading the book it is still unclear to me if rich dad is real. However, since a fictional story can provoke thoughts as well as a non-fictional story I don’t think it actually matters that much.
What I take from the book
The book did a great job in making me look at things, like employment, from a different perspective. I absolutely agree with the advice Robert gives about investing your money and only buying consumer goods or “playthings” with the money your investments make you. Until I have a substantial source of income from my investments my goal is to live a frugal lifestyle and not spend money on things I don’t need or use.
Besides investing and living frugally I will also try to focus on building my own business whilst I am an employee. I love to think about business ideas and get creative, it would be great to turn creative work into a business one day. As Robert says focus on building your own business.
Last, I definitely agree with the fact that most people are not financially educated. It would be great if the educational system could guide more on this specific topic. However, since it is not learned in school I hold myself responsible for learning more about finances, taxes, law, and corporations. The great thing is that my blog allows me to share all that I learn with you. So keep posted for more (financial) information.