Rich Dad Poor Dad Book Summary, Robert Kiyosaki

This particular book was recommended by my brother-in-law and the book has been pivotal in shaping my views on business and personal finances. I will be honest, I have received more pragmatic advice by reading this book than I did by taking 4 years of college degree. So you might want to pay attention to Robert Kiyosaki has to say.

The writer uses his two fathers – one of them with a Ph.D. and the other an eighth grade dropout – to illustrate his lessons on building wealth. Robert’s biological dad, the Ph.D. holder, is always struggling financially while Robert’s friend’s dad, the dropout, goes on to become the richest man in the state of Hawaii. Why is that one of them died leaving tens of millions of dollars while the other left bills to be paid?

The Rat Race

The core of the discrepancy between the two fathers can be found in what Robert’s biological father believed in – the “rat race” – the race where all of us end up working for everyone but ourselves. We don’t oppose this idea because we fear society’s disapproval. Has it ever occurred to you that this entire mantra – go to school, study hard, get a job – might quite simply be… wrong?

The Problem With Financial Education Is That It Isn’t Taught In School

Unless, we’re in the top 1% income bracket, the lessons we get from our family are wrong. But that doesn’t mean we can’t borrow a page from those who are in the top 1%.

In order to understand the fundamentals of financial education, you need to understand these two words: (i) Assets; and (ii) Liabilities. Forget what you’ve learned in your accounting classes because Robert defines them differently and in the simplest possible terms.

“An asset is anything that puts money in your pocket whereas a liability is anything that that takes money out of your pocket.”

Anything can be an asset or a liability. If you own a car and it eats up $500 a month from your pocket, then it’s a liability. But if you own a car and rent it on Uber which brings in $1000 a month, then it’s an asset.

The distinction between these terms is important because the poor only have expenses, while the rich buy assets, and the middle-class buy liabilities that they think are assets. Most of us think of getting a job after graduating followed by expensive phones, TVs, a house, a car, a second car and what not. We would think we are acquiring assets but actually all of them are liabilities because we would have to pay for these every month either in subscription or maintenance fees. We need to buy actual assets because no matter how much our income increases, we’ll just match it with a higher standard of living with more expenses and liabilities.

If you’re following the standard narrative of going to school and getting a job, then the chances are that you’re acquiring liabilities which you think are assets. So there needs to a paradigm shift in the way you handle your money. Make sure that what you earn goes mostly towards real assets because eventually when you acquire enough assets you won’t be needing your job.

So How Can You Start?

You can start the journey toward personal wealth at any point in your life. Regardless of age, the best way to get started is by appraising your finances, setting yourself goals, and then acquiring the education necessary to reach them.

You’ll find a lot of people advising you that you’ll lose money with the business or real estate but you won’t find the same people advising against you when you buy a giant new LED TV which, by the way, you’ll paying for every month and will eventually become worthless in a year. Yes, you may lose a lot of money in a business. But lessons you’ll learn from there will be invaluable.

It’s Not About How Much Money You Make But How Much Money You Keep

If I told you that I’ll pay you a million dollars a month but then take away $999999, you can still claim that you make a million a month. But in reality you only have a dollar while you’ve given away $999999 in, let’s say, the form of taxes. That’s what you’re doing actually. You get taxed when you earn. You get taxed on you spend. You get taxed when you save. Heck you even get taxed when you die! On the other hand, if you operate from your assets then you can sometimes get away by paying 0% tax. That’s because all your expenses will be paid for by pre-tax dollars.

If you look at the history of taxation, you’ll realize that it is crazy to think that a person who works hard with his blood and sweat to share almost half of what he earns with people who would rather remain unemployed and live off of government benefits. The government only does that to buy the masses’ votes. The rich are too smart to fall for this. They’ll buy all the luxuries they can afford but they’ll buy it for their corporation. A corporation is not a building but a folder full of papers. Papers that allow the owners of the corporation to make all the expenses then pay taxes. So the rich won’t be affected by any taxes. It will always come down to the middle and upper-middle class – the people who work the hardest – to pay for the person who does nothing.

Aaaand that’s about it. Of course there’s more to this book. I just shared the core learning points in this book summary. If you’re looking to delve into the book and are looking for the soft-copy of the book, then just send me an email or knock me on Facebook.