Rich Dad Poor Dad
What the Rich Teach Their Kids – That you can Learn Too
Robert T. Kiyosaki
There Is A Need
Having money to burn, the child goes to places, where other young people just like them hang out, and they meet people, they date, and sometimes they get married. Life is wonderful now, because today both men and women work. Two incomes are bliss. They feel successful, their future is bright, and they decide to buy a house, a car, a television, take vacations, and have children. The happy bundle arrives. The demand for cash is enormous. The happy couple decides that their couriers are vitally important and begin to work harder, seeking promotions and raises. The raises come, and so does another child and the need for a bigger house. They work harder, become better employees, even more dedicated. They go back to school to get more specialised skills so they can earn more money. Maybe they take a second job. Their income goes up, but so does the tax bracket they are in and the real estate taxes on their large home, and their social security taxes, and all the other taxes. They get their large pay check and wonder where all the money went. They buy some mutual funds and buy groceries with their credit card. Their children reach 5 or 6 years of age, and the need to save for college increases as well as the need to save for their retirement.
‘The happy couple, born 35 years ago, is now trapped in the Rat Race for the rest of their working days. They work for the owners of their company, for the government paying taxes, and for the bank paying off a mortgage and credit cards.
‘Then they advice their children to “study harder, get good grades and find a safe job or career.” They learn nothing about money, except from those who profit from their naivete, and work hard all their lives. The process repeats into another hard working generation. This is the “Rat Race”.’
Rich Dad, Poor Dad
‘Their is a difference between being poor and being broke. Broke is temporary, and poor is eternal.’
‘I dont work for Money! Money works for me!’
The Road Not Taken – Robert Frost (1916)
Two roads diverged in a yellow wood,
And sorry I could not travel both
And be one traveler, long I stood
And looked down one as far as I could
To where it bent in the underground;
Then too the other, as just as fair,
And having perhaps the better claim,
Because it was grassy and wanted wear
Though as far that the passing there
Had worn them really about the same,
And both that morning equally lay
In leaves no step had trodden black.
Oh, I kept the first for another day!
Yet knowing how way leads onto way,
I doubted if I should ever come back.
I shall be telling this with a sigh
Somewhere ages and ages hence;
Two roads diverged in a wood, and I –
I took the one less travelled by,
And that has made all the difference.
Six Important Lessons –
1) The Rich Dont Work for Money
2) Why Teach Financial Literacy?
3) Mind Your Own Business
4) The History of Taxes and the Power of Corporations
5) The Rich Invent Money
6) Work to Learn – Dont work for Money
Lesson One: The Rich Dont Work for Money
‘The poor and the middle class work for money.’ ‘The rich have money work for them.’
Anger is a big part of that formula, for passion is anger and love combined. When it comes to money, most people want to play it safe and feel secure. So passion does not direct them. Fear does.
The pattern of get up, go to work, pay bills, get up, go to work, pay bills . . . Their lives are then run forever by two emotions, fear and greed. Offer them more money, and they continue the cycle by also increasing their spending. This is what I call the Rat Race.
They react emotionally instead of using their head.
‘So is a poor man happier?’ I asked.
‘No, I dont think so,’ replied rich Dad. ‘The avoidance of money is just as psychotic as being attached to money.’
‘So what do we do?’ I asked. ‘Not work for money until all traces of fear and greed are gone?’
‘No, that would be a waste of time,’ said Rich dad. ‘Emotions are what make us human. Make us real. The word “emotion” stands for energy in motion. Be truthful about your emotions, and use your mind and emotions in your favour, not against yourself.’
For example, said rich dad. ‘If the fear of not having enough money arises, instead of immediately running out to get a job so they can earn a few bucks to kill the fear, they instead might ask themselves this question. “Will a job be the best solution to this fear over the long run?” In my opinion, the answer is “no”. Especially when you look over a person’s lifetime. A job is really a short-term solution to a long-term problem.’
‘You see, we’re all employees ultimately. We just work at different levels.’ Said rich dad. ‘I just want you boys to have a chance to avoid the trap. The trap caused by those two emotions, fear and desire. Use them in your favour, not against you.
Rich Dad went on to explain that a human’s life is a struggle between ignorance and illumination.
He explained that once a person stops searching for information and knowledge of one’s self, ignorance sets in. That struggle is a moment-to-moment decision – to learn to open or close one’s mind.
Great civilizations collapsed when the gap between the haves and the havenots was too great.
‘But dont we have business schools?’ Mike asked. ‘Aren’t you encouraging me to go to school for my master’s degree?’
‘Yes,’ said rich dad. ‘But all too often, business schools train employees who are sophisticated bean counters. Heaven forbid a bean counter takes over a business. All they do is look at the numbers, fire people and kill the business. I know because I hire bean counters. All they think about is cutting costs and raising prices, which cause more problems. Bean counting is important. I wish more people knew it, but it, too is not the whole picture,’ added rich dad angrily.
‘Yes’, said the rich dad. ‘Learn to use your emotions to think, not think with your emotions.
Most people never see these great opportunities because they’re looking for money and security, so that’s all they get.
Lesson Two: Why Teach Financial Literacy?
Most people fail to realise that in life, its not how much money you make, it’s how much money you keep.
‘If you want to be rich, you need to be financially literate.’
Rule One – You must know the difference between an asset and a liability, and buy assets.
Rich dad believed in KISS principle – ‘Keep It SimpleStupid’.
Many financial novices do not know the relationship between the Income Statement and the Balance Statement.
Look at following diagrams of poor, middleclass and rich people.
POOR - Cash flow
An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket. This is really all you need to know If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities.
Money only accentuates the cash-flow pattern running in your head. If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending. Thus, the saying, ‘A fool and his money is one big party.’
What is missing from their education is not how to make money, but how to spend money – what to do after you make it. It’s called financial aptitude – what you do with the money once you make it, how to keep people from taking it from you, how long you keep it, and how hard that money works for you. Most people cannot tell why they struggle financially because they dont understand cash flow. A person can be highly educated, professionally successful and financially illiterate. These people often work harder than they need to because they learned how to work hard, but not how to have their money work for them.
If you find you have dug yourself in a hole... Stop digging.
As a child my dad often told us that the Japanese were aware of three powers: ‘The power of the sword, the jewels and the mirror.’
The sword symbolises the power of weapons.
The jewel symbolises the power of money. There is some degree of truth to the saying, ‘Remembering the golden rule. He who has the gold makes the rules.’
The mirror symbolises the power of self-knowledge. This self-knowledge, according to Japanese legend, was the most treasured of the three.
The poor and middle class all too often allow the power of money to control them.
It is said that the fear of public speaking is a fear greater than death for most people. According to psychiatrists, the fear of public speaking is caused by the fear of ostracism, the fear of standing out, the fear of criticism, the fear of ridicule, the fear of being an outcast.
And the main reason, that most people say ‘Play it safe’ is out of fear. That goes for anything, be it sports, relationships, career, money.
Rich Dad held meetings with his bankers, attorneys, accountants, brokers, investors, managers and employees. Here was a man who left school at 13, now directing, instructing, ordering and asking questions of educated people. They came at his beck and call, and cringed when he did not approve of them.
We started to understand why our rich dad told us that schools were designed to produce good employees instead of employers.
When it comes to money, high emotions tend to lower financial intelligence. I know from personal experience that money has a way of making every decision emotional.
The end result in making a decision to own a house that is too expensive in lieu of starting an investment portfolio early on impacts an individual in at least the following three ways:
1) Loss of time
2) Loss of additional capital
3) Loss of education – the best investments are usually first sold to ‘sophisticated investors,’ who then turn around and sell them to the people playing it safe.
If I quit my job today, I would be able to cover my monthly expenses with the cash flow from my assets.
My next goal would be to have the excess cash flow from my assets reinvested into the asset column. The more money that goes into my asset column, the more my asset column grows. The more my asset column grow, the more my cash flow grows. And as long as I keep my expenses less than the cash flow from these assets, I will grow richer, with more and more income from sources other than my physical labour.
As this reinvestment process continues, I am well on my way to being rich. The actual definition of rich is in the eye of the beholder. You can never be too rich.
Just remember this simple observation:
- The rich buy assets.
- The poor only have expenses.
- The middle class buys liabilities they think are assets.
Lesson Three: Mind Your Own Business
In 1974, Ray Kroc, the founder of McDonald’s, was asked to speak to the MBA class at University of Texas at Austin.
When Ray asked the question – ‘What business was he in?’ Most MBA students replied – hamburger business.
Ray chuckled, ‘That is what I thought you would say.’ He paused and then quickly said, ‘Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.’
Most people work for everyone else but themselves. They work first for the owners of the company, then for the government through taxes, and finally for the bank that owns their mortgage.
Start minding your own business. Keep your daytime job., but start buying real assets, not liabilities or personal effects that have no real value once you get them home. A new car loses nearly 25 percent of the price you pay for it the moment you drive it off the lot.
In my world, real assets fall into several different categories:
1) Business that do not require my presence. I own them but they are manged or run by other people. If I have to work there, it’s not a business. It becomes my job.
2) Stocks
3) Bonds
4) Mutual funds
5) Income-generating real estate.
6) Notes (IOUs).
7) Royalties from intellectual property such as music, scripts, patents.
8) And anything else that has value, produces income or appreciates and has a ready market.
The best thing about money is that it works 24 hours a day and can work for generations.
What makes most people do is they impulsively go out and buy a new car, or some other luxury, on credit.
Lesson Four: The History of Taxes and The Power of Corporations
In England and America originally, there were temporary taxes levied in order to pay for wars. The king or the president would put the word out and ask everyone to ‘chip in’. Taxes were levied in Britain for the fight against Napolean from 1799 to 1816, and in America taxes were levied to pay for the Civil War from 1861 to 1865.
Financial IQ is made up of knowledge from four broad areas of expertise:
1) Accounting
2) Investing
3) Understanding Markets
4) Law – tax advantages and protection from law suits
In Summary
The Rich with Corporations
1. Earn
2. Spend
3. Pay Taxes
People Who Work for Corporations
1. Earn
Pay Taxes
3. Spend
Lesson Five: The Rich Invent Money
Once we leave school, most of us know that it is not as much a matter of college degrees or good grades that count. In the real world outside of academics, something more than just grades is required. I have heard it called, ‘guts’, ‘chutzpah’, ‘balls’, ‘audacity’, ‘bravado’, cunning’, ‘daring’, ‘tenacity’, and ‘brilliance’. This factor, whatever it is labeled, ultimately decides one’s future much more than school grades.
It is excessive fear and self-doubt that were the greatest detractors of personal genius. It broke my heart to see students know the answers, yet lack the courage to act on the answer. Often in the real world, it’s not the smart that get ahead but the bold.
Old Ideas are biggest liability. It is a liability because they fail to realize that while that idea or way of doing something was an asset yesterday, yesterday is gone.
Most people only know one solution: work hard, save and borrow.
Financially intelligent people, take whatever happens and make it better. Few people realize that luck is created. Just as money is. And if you want to be luckier and create money instead of working hard, then your financial intelligence is important. If you are the kind of person who is waiting for the ‘right’ thing to happen, you might wait for a long time. It’s like waiting for all the traffic lights to be green for five miles before starting the trip.
The problem with ‘secure’ investments is that they are often sanitised. That is, made so safe that the gains are less.
A professional investor will –
1) Find an opportunity that everyone else has missed.
2) Knows how to raise money from no money.
3) Knows how to organise smart people.
Lesson Six: Work to Learn – Dont Work for Money
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 ‘specialise.’
Rich dad encouraged me to do exactly the opposite. ‘you want to know a little about a lot’ was his suggestion. That is why for years I worked in different areas of his companies. For a while, I worked in his accounting department. Although I would probably never have been an accountant, he wanted me to learn via ‘osmosis’.
If I failed, I went broke. Rich dad thought it best to go broke before 30. ‘you still have time to recover’ was his advice.
There is an old cliche that goes, ‘Job is an acronym for “Just Over Broke.”
There is another horrible management theory that goes, ‘Workers work had enough to not be fired, and owners pay just enough so that workers won’t quit.’
The world is filled with talented poor people. All too often, the’re poor or struggle financially or earn less than they are capable of, not because of what they know but because of what they do not know.
The main management skills needed for success are:
1. The management of cash flow.
2. The management of systems (including yourself and time with family).
3. The management of people.
In conclusion, I became both dads. One part of me is a hard-core capitalist who loves the game of money making money. The other side is a socially responsible teacher who is money. The other side is a socially responsible teacher who is deeply concerned with this ever-widening gap between the have and have nots. I personally hold the archaic educational systems primarily responsible for this growing gap.
Overcoming Obstacles
Once people, have studied and become financially literate, they may still face roadblocks to becoming financially independent. The five reasons are:
1) Fear
2) Cynicism
3) Laziness
4) Bad habits
5) Arrogance
Fear
I like Texas and Texans. In Texas, everything is bigger. When Texans win, they win big. And when they loose, it’s spectacular. Texans have a saying, ‘If you’re going to go broke, go big. You don’t want to admit you went broke over a duplex. Most people around here are so afraid of losing, they don’t have a duplex to go broke with.’
The greatest reason for the lack of financial success was because most people played it too safe. ‘People are so afraid of losing that they lose.’ ‘Winning means, being unafraid to lose.’
‘i have never met a golfer who has never lost a golf ball. I’ve never met people who have fallen in love who have never had their heart broken. And I’ve never met someone rich who has never lost money.
Another saying in Texas is, ‘Everyone wants to go to Heaven, but no one wants to die.’ Most people dream of being rich, but are terrified of losing money. So they never get to Heaven.’
‘For winners losing inspires them and for losers losing defeats them.’
Quoting John D. Rockefeller, ‘I always tried to turn every disaster into an opportunity.’
If you have any desire of being rich, you must focus. Put a lot of your eggs in a few baskets. Do not do what poor and middle class people do: put their few eggs in many baskets.
Cynicism
‘The sky is falling. The sky is falling’. Most of us know the story of Chicken Little., who ran around warning the barnyard of impeding doom. We all know people who are that way. But we all have a ‘Chicken Little’ inside each of us.
Rich dad gave me a way of looking at Chicken Little. ‘Just do what Colonel Sanders did.’ At the age of 66, he lost his business and began to live on his Social security check. It wasn’t enough. He went around the country selling his recipe for fried chicken. He was turned down 1,009 times before someone said ‘yes’. And he went on to become a multi-millionaire at an age when most people are quitting. ‘He was a brave and tenacious man,’ rich dad said of Harlan Sanders. So when your’re in doubt and feeling a little afraid, just do what Col. Sanders did to his little chicken. He fired it.
Laziness
Rich dad forbade the words ‘I can’t afford it.’
In my real home, that’s all I heard. Instead, rich dad required his children to say, ‘How can I afford it?’ His reasoning, the words ‘I can’t afford it’ shut down your brain. It didn’t have to think anymore. ‘How can i afford it?’ opened up the brain. Forced it to think and search for answers. I can’t afford it, also brings up sadness. A helplessness that leads to despondency and often depression. ‘apathy’ is another word. ‘How can I afford it?’ opens up possibilities, excitement and dreams. When I decided to exit the rat race, it was simply a question. ‘How can I afford to never work again?’ and my mind began to kick out answers and solutions. The hardest part was fighting my real parents’ dogma of ‘We can’t afford that.’ The answer is a little - Greed.
Guilt is worse than greed. For guilt robs the body of its soul.’ And to me, Eleanor Roosevelt said it best: ‘Do what you feel in your heart to be right – for you’ll be criticised anyways. You’ll be damned if you do, and damned if you don’t.
Habits
Our lives are a reflection of our habits more than our education.
‘Well, most people let the bullies kick sand in their faces. I decided to use the fear of the bully to make me stronger. Others get weaker.
I liked what rich dad was saying, ‘So if I pay myself first, I get financially stronger, mentally and fiscally.’ And ‘if I pay myself last, or not at all i get weaker. So people like bosses, managers, tax collectors, bill collectors and landlords push me around all my life. Just because I don’t have good money habits.’
Arrogance
Arrogance is ego plus ignorance. ‘what I know makes the money. What I don't know loses me money. Every time I have been arrogant, i have lost money. Because when I am arrogant, I truly believe that what I don't know loses me money. Every time I have been arrogant, i have lost money. Because when I am arrogant, I truly believe that what I don't know is not important,’ rich dad would often tell me.
Getting Started
The problem is, our financial genius lies asleep, waiting to be called upon. It lies asleep because our culture has educated us into believing that the love of money is the root of all evil.
I offer you ten steps as a process to develop your God-given powers. Powers only you have control over.
1) I need a reason greater than reality
A reason or a purpose is a combination of ‘wants’ and ‘don’t wants’. When people ask me what my reason for wanting to be rich is, it is a combination of deep emotional ‘wants’ and ‘don’t wants.’ I don't want to work all my life. I don’t want what my parents aspired for, which was job security and a house in the suburbs. I don’t like being an employee. I hated that my dad always missed my football games because he was so busy working on his career. The rich don't do that. They work hard and pass it on to their children.
Now the wants. I want to be free to travel the world and live in the lifestyle I love. I want to be young when I do this. I want to simply be free. I want control over my time and my life. I want money to work for me. Those are my deep seated emotional reasons. What are yours? If they are not strong enough, then the reality of the road ahead may be greater than your reasons.
2) I 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.
For 90 percent of the population, being rich is ‘too much of a hassle.’ So they invent sayings that go, ‘I’m not interested in money,’ Or ‘I’ll never be rich.’ Or ‘I don't have to worry I am still young.’ Or ‘When i make some money I will think about my future.’ Or ‘My husband / wife handles my finances.’ The problem with those statements is they rob the person who chooses to think such thoughts of two things: one is time, which is your most precious asset, and two is learning.
3) Choose friends carefully
Dont listen to poor or frightened people. I have such friends, and I love them dearly, but they are the ‘Chicken Littles’ of life.
Wise investors buy an investment wen it’s not popular. They know their profits are made when they buy, not when they sell. It’s all ‘insider trading.’
4) Master a Formula and Then Learn a New
The power of learning quickly. In order to make bread, every baker follows a recipe, even if it’s only held in their head. The same is true for making money. That’s why money is often called ‘dough’.
You are what you eat. 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. It’s priceless in finding faster formulas – recipes, if you will, for making dough. Working hard for money is an old formula born in the day of the cave man.
5) Pay Yourself First
The power of self discipline. If you cannot get control of yourself, do not try to get rich. I would venture to say that it is the lack of personal self-discipline that is the No.1 delineating factor between the rich, the poor and the middle class. The three most important management skills necessary to start your own business are: Management of cash flow, Management of people and Management of personal time.
- Don't get into large debt positions that you have to pay for. Keep your expenses low. Build your assets first. Then, buy the big house or nice car. Being stuck in the rat race is not intelligent.
- when the pressure comes up short, 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.
Poor people have poor habits. A common bad habit is innocently called ‘Dipping into savings.’ The rich know that savings are only used to create more money, not to pay bills.
6) Pay Your Brokers Well
The power of good advice. My rich Dad taught me to pay professionals well. Today, I have expensive attorney’s accountants, real estate brokers and stockbrokers. Why? Because if, and I do mean if, the people are professionals, their service should make you money. And the more money they make, the more money I make.
The real skill is to manage and pay well the people who are smarter than you in some technical area. That is why companies have a board of directors. You should have one, too. And that is financial intelligence.
7) Be an Indian Giver
This is the power of getting something for nothing. When the first white settlers came to America, they were taken aback by a cultural practice some American Indians had. For example, if a settler was cold, the Indian would give the person a blanket. Mistaking it for a gift, the settler was often offended when the Indian asked for it back.
The Indians also got upset when they realised the settlers did not want to give it back. That is where the term ‘Indian giver’ came from. A simple cultural misunderstanding.
So wise investors must look at more than ROI; it’s the assets you get for free once you get your money back. That is financial intelligence.
8) Assets Buy Luxuries
As a habit, I used my desire to consume to inspire and motivate my financial genius to invest.
9) The Need for Heroes
When it comes to investing, too many people make it sound hard. Instead find heroes who make it look easy. Donald Trump, Peter Lynch, George Soros, Jim Rogers and others.
10) Teach and You shall Receive
Believe in tithing. If you want something, you first need to give. When he was short of money, he simply gave money to his church or to his favourite charity. If i could leave one single idea with you, it is that idea. Wherever you feel short, or in need of something give what you want first and it will come back in buckets. That is true for money, a smile love, friendship. I just trust that the principle of reciprocity is true, and I give what I want. I want money, so I give money, and it comes back i multiples. ‘God does not need to receive but humans need to give.’
My dad would often say, ‘Poor people are more greedy than rich people.’
