December 24, 2020

Rich Dad Poor Dad summary: Read this 20 mins post instead of 5 hrs book !!!

Best financial self help book
Rich Dad Poor Dad - Review & Summary

About Rich Dad Poor Dad

Rich Dad Poor Dad is written by Robert T. Kiyosaki and published in the year 1997. Though this book is written a couple of decades ago, it still ranks as one of the best financial advice books in the market. Rich Dad Poor Dad has sold over 32 million copies in more than 51 languages across 109 countries so far. 

Rich Dad Poor Dad Review

best financial advice book
Rich Dad Poor Dad review

Robert 
T. Kiyosaki was groomed by two Fathers, one was rich and the other one was educated but poor.  Hence the name Rich Dad Poor Dad. Robert followed the suggestions given by his rich dad and eventually, he became a millionaire. In this book, Robert shares the financial advice given to him by both his fathers and also some of his own financial learnings.
 

The author has shared advice in a structured and organized way. The book is mainly divided into 4 sections as I see it viz introduction, 6 lessons, overcoming 5 obstacles, and getting started in 10 steps. 6 lessons are divided into 6 chapters, and the rest of the sections are covered in a chapter each.

The first question that comes to everyone's mind is that how can someone have two fathers? I had the same question as well. For the first few pages, the author does not reveal details about his two fathers, mostly to generate curiosity among the readers but in the latter part, he explains that the educated poor dad is his biological father and the rich dad is his friend Mike's dad. Since he had two influential fathers he learned about both rich and poor dad's advice instead of just learning one type of advice like everyone else does. He also compares the advice given by rich and poor dad and explains which worked for him. The main difference between rich and poor is that the poor dad wants his son to follow the safe path by doing well in academics and join a salaried job whereas the rich dad wants his son to take the risk, build his own company so that he can give salary to others who follow the aforementioned safe path. One teaches to write a resume and the other teaches to write financial and business plans to create jobs. One wants Robert to work for money and the other wants the money to work for him.  

Comparison in the book is mostly between the financial thoughts and actions taken by the rich and poor. And most part of the book covers the lessons taught by rich dad, and poor dad's advice is explained solely for comparison purposes.

In many cases, the author has provided analogies and shared some of his interactions and arguments with people whom he has come across in his life. In all of those interactions, the author was right and the other person was wrong. The author brags about himself a little bit and also tries to promote his cash flow game, something that can be completely skipped. Readers can just focus on 6 lessons, overcoming 5 obstacles, and getting started in 10 steps, which I have explained in the latter part of this post.

If the entire book can be put in one single financial advice then the advice would be to take the risk, start your own business and go all out on that, it is okay to fail at the early stages of life.
Though this advice sounds pleasant and proves that's the right way to become a millionaire, the author never explains what to do once you fail. This theory has worked for Robert T. Kiyosaki, but there is no guarantee that it would work for everyone. We all have read about people who have taken this approach and turned bankrupt. Hence it's up to the readers to do their own assessment, calculate the risk, and then implement the advice given by Robert.

Since Robert T. Kiyosaki is into real estate and the stock market, many of the tips and advice are around that. If you are also in the same field then you may have to read the entire book, otherwise just reading the below summary of Rich dad Poor Dad should be good enough.

Rich Dad Poor Dad: 6 Lessons

Rich dad poor dad summary
6 lessons of Rich Dad Poor Dad

Lesson #1: The Rich Don't Work for Money

The pattern of the middle class is to get up, go to work, pay bills, get up, go to work, pay bills...Their lives are forever run by two emotions, fear and greed. Offer them more money, they will continue the cycle by also increasing their spending. Their emotions do their thinking.

The trap caused by fear and desire, use them in your favor, not against you. Schools focus only on teaching people to work for money, not how to harness money's power. A job is only a short-term solution to a long-term problem. The poor, the middle class, and the ignorant will have their lives ruined simply because they will continue to believe that money is real and that the company they work for, or the government, will look after them.

The Poor think that everyone has to work, rich are crooks, I should get another job, I deserve this raise or I like this job because it's secure. Instead of thinking in a very obvious way like how the poor and middle class does, ask yourself "Is there something I'm missing here?" which breaks the emotional thought and provokes you to explore better opportunities.

Start seeing things that other people don't see, forget about needing a paycheck. Keep pushing your brain and soon your mind will show you ways of making money more than what you get paid. Most people never see these opportunities because they are looking for money security, so that's all they get. Avoid life's biggest trap of working for others and money.

Learn to use your emotions to think, not think with your emotions. Let go of the idea of working for money and instead learn to have money work for you. Rich really did "make money" but they do not work for it. Instead, they make the money work for them. Rich knows that money is an illusion, truly like the carrot for the donkey. It's only out of fear and greed that the illusion of money is held together by billions of people thinking that money is real. Money is really made up. 

If you work for money, you give the power up to your employer. If your money works for you, you keep and control the power.

Lesson #2: Why Teach Financial Literacy?

Retirement does not mean not working, it means barring unforeseen cataclysmic changes, we can choose to work or not work either way our wealth should grow automatically, staying way ahead of inflation. It means freedom. The assets must be capable of growing by themselves. It's like planting a tree. You water it for years and then one day it doesn't need you anymore. Its roots would have gone down deep enough then the tree provides shade for your enjoyment.

Intelligence solves problems and produces money. Money without financial intelligence is money soon gone. Most people fail to realize that in life, it's not how much money you make, it's how much money you keep.

We have all heard stories of lottery winners who are poor, then suddenly rich, then poor again. That's because of the lack of financial intelligence. If you want to be rich, you need to be financially literate. Kids graduate from the school system that is created in the agrarian age, with virtually no financial foundation. The school focuses on the word "literacy" and not "financial literacy". Professional success is no longer solely linked to academic success.
What is missing in education is not how to make money, but how to spend money and what to do after you make it. It's called financial aptitude - what you do with the money once you make it.

Accounting is possibly the most boring subject in the world. It also could be the most confusing. But if you want to be rich, long term, it could be the most important subject. If you want to be rich, you go to read and understand numbers.

Rule: Know the difference between an asset and a liability. If you want to be rich buy assets and not liabilities. Rich acquire assets. The poor and middle class acquire liabilities, but they think they are assets. Assets put money in your pocket. A liability is something that takes money out of your pocket. Examples of assets are stocks, bonds, notes, real estate, intellectual property and the income that you get out of these assets are dividends, interest, rental income, and royalties.

A real-life example of a liability is, a couple work hard and decide to buy their dream home, as a result, they have a new tax called property tax, Then they buy a new car, furniture, new appliances to match their new house. All of a sudden they wake up and their liabilities column is full of mortgage debt and credit card debt. Most people work all their lives paying for a home they never own. They are now trapped in the rat race of working and paying bills. A nice home is an emotional thing and when it comes to money, high emotions tend to lower financial intelligence.

When you want a bigger house, first buy assets that will generate cash flow to pay for the house. Always keeps assets greater than liabilities in the financial statements.

More money seldom solves someone's money problems. Intelligence solves problems. Wealth is a person's ability to survive so many numbers of days forward. If I stopped working today, how long could I survive?

Lesson #3: Mind your Own Business

Ray Kroc, the founder of McDonald's asks students "What business do you think I'm in"?
As most of us would have answered, one brave student answers "who in the world doesn't know that you're in the hamburger business". Ray replies "ladies and gentlemen, I'm not in the hamburger business. My business is real estate". The primary business focus was to sell hamburger franchises but what he never lost sight of was the location of each franchise. He knew that the real estate and its location was the most significant factor in the success of each franchise.  McDonald's today is the largest single owner of real estate in the world, owning even more than the catholic church.

There is a big difference between your profession and your business. Ray Kroc's profession is selling hamburgers but his business was accumulation of income-producing real estate.

Financial struggle is often directly the result of people working all their lives for someone else. Many people will have nothing at the end of their working days. To become financially secure, a person needs to mind their own business. Business revolves around asset column, as opposed to income columns.

Start minding your own business. Keep your daytime job, but start buying real assets. Keep your expenses low, reduce your liabilities, and diligently build a base of solid assets.

Some of the assets suggested by 
Robert T. Kiyosaki

i) Business that do not require your presence. You own them, but they are managed or run by other people.
ii) Stocks.
iii) Bonds.
iv) Mutual funds
v) Income-generating real estate
vi) Notes
vii) Royalties from intellectual property such as music, scripts, patents
viii) Anything else that has value, produces income, or appreciates and has a ready market.

Robert does not encourage anyone to start a company unless they really want to. Nine out of ten companies fail in five years. So only if you have the desire to own your own company then start it. Otherwise, keep your daytime job and mind your own business by building the asset column.

Lesson #4: The History of and The Power of Corporation

The reality is that the rich are not taxed. It's the middle class that pays for the poor, especially the educated upper-income middle class. Rich sees an opportunity and they do not play by the same set of rules. The rich already knew about corporations, which became popular in the days of sailing ships. The rich created the corporation as a vehicle to limit their risk of each voyage. The rich put their money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the new world to look for treasures. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for the particular voyage.

How did the rich outsmart the intellectuals?
Once the "take from the rich" tax was passed, cash started flowing into government coffers. Initially, people were happy. The money went to government workers in the form of jobs and pensions. It went to the rich via their factories receiving government contracts. The government became a large pool of money.
As this cycle of growing government spending continued, the demand for money increased and the "Tax the rich" idea was now being adjusted to include the lower-income levels. The harder you work, the more you pay the government.

It's the knowledge of the power of the legal structure of the corporation that really gives the rich a vast advantage over the poor and the middle class. Corporations protect the rich, a corporation is merely a file folder with some legal documents in it, sitting in some attorney's office registered with a state government agency.  A corporation can do so many things that an individual cannot. The income tax rate of the corporation is less than the individual income-tax rates. Employees earn and get taxed and they live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It's one of the biggest legal tax loopholes that the rich use. By owning your own corporation - vacations are board meetings. Car payments, insurance, repairs are company expenses. Health club membership is a company expense. The rich search for ways to minimize their tax burden. They hire smart attorneys and accountants and persuade politicians to change laws or create legal loopholes. Real estate is an investment vehicle that gives a great tax advantage. As long as you keep trading up in a value, you will not be taxed on the gains, until you liquidate.

Lesson #5: The Rich Invent Money

(Title of this lesson is a complete misnomer, however, I will summarize what is explained in this chapter)

If there is one thing common in all of us, we all have tremendous potential, and we all are blessed with gifts. Yet, the one thing that holds all of us back is some degree of self-doubt. It is not much of the lack of technical information that holds us back, but more the lack of self-confidence. Financial genius requires technical knowledge as well as courage. If the fear is too strong, the genius is suppressed. Learn to take risks, to be bold, to let your genius convert that fear into power and brilliance. There are questions such as why take the risk? why should I bother developing financial IQ? why should I become financially literate? and the answer is "just to have more options".

The land was wealth 300 years ago. So the person who owned the land owned the wealth. Then, it was factories and production, and America rose to dominance. The industrialist owned the wealth. Today, it is information. And the person who has the most timely information owns the wealth. 

Old ideas are the biggest liability. So many people struggle, often working harder, simply because they cling to old ideas. They fail to realize that the idea of doing something that was an asset yesterday is a liability today. Welcome the change than dreading the change.

The author explains how he invented money. Since 1984, Robert T. Kiyosaki made millions simply by doing what the school system did not. As explained earlier school doesn't really teach financial literacy. Robert saw an opportunity and exploited it. In 1984 Robert T. Kiyosaki began teaching cash flow games and simulations. It's an instant financial feedback system to the players. Instead of the teacher lecturing you, the game is feeding back a personalized lecture, custom made just for you. Robert made money by teaching people how to make and manage money through his game.

The rich recognize different financial options. Rich people are often creative and take calculated risks.

Lesson #6: Work to Learn 

The world is filled with smart, talented, educated, and gifted people. But the sad truth is, great talent is not enough. Financial intelligence is a synergy of accounting, investing, marketing, and law. Combine those four technical skills and making money with money is easier. When it comes to money, the only skill most people know is to work hard.

In school and in the workplace, the popular opinion is the idea of "specialization". That is in order to make more money or get promoted, you need to "specialize". That is why medical doctors immediately begin to seek a specialty such as orthopedics or pediatrics. The same is true for accountants, architects, lawyers, etc. Robert's educated poor dad believed in this.

However Rich dad encouraged him to do exactly the opposite. "You should know a little about a lot". The more specialized you become, the more you are trapped and dependent on that specialty.
Robert followed rich dad's suggestion and explored many job opportunities such as the marine corps to learn to lead troops. Took up a job in Xerox Corp to learn sales. Then later Robert formed his first company by putting all this learning into action. 

Instead of simply working for money and security, Robert suggests taking a second job that will teach a second skill. Often he recommends joining a network marketing company, also called multilevel marketing if you want to learn sales skills. These companies help people to get over their fear of failure and rejection, which are the main reasons people are unsuccessful. Education is more valuable than money, in the long run. The most important specialized skills are sales and understanding marketing. It is the ability to sell. It is communication skills such as writing, speaking, and negotiating that are crucial to a life of success. It is the skill that you need to work on constantly, attending courses, or buying educational tapes to expand knowledge. There are people who are geniuses, but they cannot communicate effectively with other human beings and as a result, their earnings are pitiful.

In addition to being good sellers and marketers, we need to be good teachers as well as good students. To be truly rich, we need to be able to give as well as to receive. The more you give the more you receive. Giving money is the secret to most great wealthy families. An important law of money: "Give and you shall receive".

The main management skills needed for success are

i) The management of cash flow.
ii) The management of systems (including yourself and time with family).
iii) The management of people.

Overcoming obstacles

rich dad poor dad summary
Rich dad poor dad overcoming obstacles

Once people have studied and become financially literate, they may still face roadblocks to becoming financially independent. There are five main reasons why financially literate people may still not develop abundant asset columns.

#1 Fear

There is no one who really likes losing money. And there is no rich person who has never lost money. But there are a lot of poor people who have never lost a dime. The fear of losing money is real. Everyone has it. Event the rich. But it's not fear that is the problem. It's how you handle fear. It's how you handle losing. It's how you handle failure that makes the difference in one's life. The primary difference between a rich person and a poor person is how they handle that fear.
The greatest reason for the lack of financial success was because most people played it too safe. The reason why most don't win financially is because the pain of losing money is far greater than the joy of being rich.

Failure inspires winners. And failure defeats losers. It is the biggest secret of winners. It's the secret that losers do not know.  The greatest secret of winners is that failure inspires winning; thus they are not afraid of losing.

Most have lots of cash in low-yield bonds, mutual funds, and a few individual stocks. It is a safe and sensible portfolio. But it is not a winning portfolio. It is a portfolio of someone playing not to lose. It is still a better portfolio than more than 70 percent of the population. Because a safe portfolio is a lot better than no portfolio.

But playing it safe and going balanced on the investment portfolio is not the way successful investors play the game. If you have little money and you want to be rich, then you must be first "focussed", not "balanced". Balanced people go nowhere. They stay in one spot. Put a lot of your eggs in a few baskets and do not put few eggs in many baskets.

#2 Cynicism

All of us have doubts, "I am not smart", "I am not good enough", "so and so is better than me" or doubts often paralyze us. We play the "what if?" game. "What is the economy crashes right after I invest?" or "What if I lose control and I can't pay the money back?". These words of doubt often get so loud that we fail to act. We fail to move forward.

Most people are poor because when it comes to investing it needs great courage to not let rumors and talk of doom and gloom affect your doubts and fears.

Cynics never win. Unchecked doubt and fear create a cynic. Cynics criticize and winners analyze. The analysis allowed winners to see that critics were blind, and to see opportunities that everyone else missed. And finding what people miss is key to any success.

#3 Laziness

Busy people are often the laziest. We have all heard stories of a businessman who works hard to earn money. He works hard to be a good provider for his wife and children. He spends long hours at the office and brings work home on weekends. One day he comes home to an empty house. His wife has left with kids. He knew he and his wife had problems, but rather than work to make the relationship strong, he stayed busy at work. Dismayed, his performance at work slips and he loses his job.

There are people who are too busy to take care of their wealth. And there are people too busy to take care of their health. The cause is the same. They are busy, and they stay busy as a way of avoiding something they do not want to face. That's the most common form of laziness. Laziness by staying busy.

And greed is the cure for laziness. We were raised thinking of greed or desire as bad. Yet, we all have inside of us this yearning to have nice things, new things, or exciting things. To keep that emotion of desire under control, often parents found ways of suppressing that desire with guilt. Often we see parents telling "I can't afford it."

Rich dad forbade the words "I can't afford it.". Rich dad required his children to say, "How can I afford it?". "I can't afford it" shuts down your brain, it didn't have to think anymore. "How can I afford it" opened up the brain. Forces it to think and search for answers.

Too much greed, however, as anything in excess is not good. But guilt is worse than greed.

#4 Habits

Our lives are a reflection of our habits more than our education. Habits control the behavior of humans. Poor and middle class pay everyone else first and they pay themself last, only if they have anything left. But rich pay themself first even before they pay the government. Even if the rich don't enough money, they will still pay themself first.

After paying yourself, the pressure to pay taxes and other creditors is so great that it forces you to seek other forms of income. The pressure to pay becomes motivation. If you pay yourself first, you get financially stronger, both mentally and fiscally. If you pay yourself last, or not at all, you get weaker.

#5 Arrogance

Arrogance is ego plus ignorance. Many people use arrogance to try to hide their own ignorance.

Rich dad would often tell  "What I know makes me money. What I don't know loses me money. Every time I have been arrogant, I have lost money. Because I'm arrogant, I truly believe that what I don't know is not important".

When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or find a book on the subject.

Getting started in 10 steps

Rich dad poor dad best summary
Rich dad poor dad - Getting started

#1 Reason greater than reality

A reason or purpose is a combination of "wants" and "don't wants." Become rich isn't easy but it isn't hard either. But without a strong reason or purpose, anything in life is hard.

#2 Choose daily
 
Financially, with every dollar we get in our hands, we hold the power to choose our future to be rich, poor, or middle class. Our spending habits reflect who we are. Poor people simply have poor spending habits. If you chose to be rich then learn to acquire assets, real assets. Invest first in education, In reality, the only real asset you have is your mind.

#3 Choose friends carefully

Do not choose friends by their financial statements. The point is to learn from all of them. Learn how to make money from the rich and learn what not to do from the poor. But don't listen to poor or frightened people when it comes to money. They will always tell you why something won't work, they blindly accept doom-and-gloom.

#4 Master a formula and then learn a new one

You become what you study. Be careful what you study and learn, because your mind is so powerful that you become what you put in your head.

When it comes to money, the masses generally have one basic formula they learned in school. And that is, work for money. If you are tired of what you are doing, or you are not making enough, it's simply a case of changing the formula via which you make money.

In today's fast-changing world, it's not so much what you know anymore that counts, because often what you know is old. It is how fast you learn. That skill is priceless. Finding faster formulas is priceless.

#5 Pay yourself first  

The power of self-discipline is very important. It is lack of self-discipline that causes more lottery winners to go broke soon after winning millions.

The Richest Man in Babylon, by George Classen, is where the statement "pay yourself first" comes from. Each month, allocate money to your asset column before you pay your monthly expenses. In paying yourself first don't get into debt in the first place. Keep your expenses low. Build up assets first and then buy a big house or a nice car. When there is not enough money to pay the bills after paying yourself, let the pressure build and don't dip into your savings or investments. Use the pressure to inspire your financial genius to come up with new ways of making more money and then pay your bills. You will have increased your ability to make more money as well as your financial intelligence.

#6 Pay your brokers well

We live in the information age. Information is priceless. A good broker should provide you with information as well as take the time to educate you. A good broker saves time in addition to making money. A broker is your eyes and ears to the market. 

#7 Be an "Indian giver"

 This is the power of getting something for nothing. When American settlers were cold, Indians would give them a blanket. Mistaking it for a gift, the settlers were offended when the Indian asked it back. Then Indians also got upset when they realized the settlers did not want to give it back. That is where the term "Indian giver" came from.

In the world of the "asset column", being an Indian giver is vital to wealth. Always ask yourself "How fast do I get my money back?" That is why the ROI, or return of investment is so important. 

#8 Assets buy luxuries

Everyone loves luxuries. The difference is, some people buy their luxuries on credit. Instead by assets and assets will eventually pay for luxuries.

#9 The need for heroes

Heroes do more than simply inspire us. Heroes make things look easy. It's making it look easy that convinces us to want to be just like them. "if they can do it, so can I". When it comes to investing, too many people make it sound hard. Instead, find heroes who make it look easy. 

#10 Teach and you shall receive

If you want something, you first need to give. The same goes for money as well. Whenever you feel "short" or in "need" of something, give what you want first and it will come back in buckets. That is true for smile, love, friendship and money.

Whenever you feel that people aren't smiling at you, simply begin smiling and say hello, and like magic, there will suddenly be more smiling people around you. It is true that your world is only a mirror of you.

Rating : ⭐⭐⭐☆☆

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