RICH DAD POOR DAD – BOOK SUMMARY

Rich Dad Poor Dad, originally published in 1997, has become a global phenomenon, selling over 32 million copies in more than 51 languages. Its enduring popularity is evidenced by its six-year stint on the New York Times best-sellers list and the endorsement of celebrities like Oprah Winfrey. This summary distills the book’s wisdom into six rules designed to empower readers to make their money work for them. Through engaging fables and anecdotes, the authors contrast the mindsets of a “Poor Dad” and a “Rich Dad”, highlighting the fundamental differences in their approaches to wealth and success.

The Poor Dad subscribes to beliefs such as “the love of money is the root of all evil” and “money does not matter”, advocating for traditional paths like working for a good company. In contrast, Rich Dad embraces the idea that “money is power” and encourages entrepreneurial thinking, urging individuals to find ways to make money work for them. The story’s narrator, having been influenced by both his biological father (the Poor Dad) and his friend’s father (the Rich Dad), shares his journey of learning about financial independence.

In one memorable incident, the narrator and his friend Mike attempt to make money by melting down toothpaste tubes to create coins. This prompts them to seek guidance from Mike’s dad, who offers unconventional but invaluable lessons on wealth-building outside the confines of a classroom.

CHAPTER 1: THE RICH DO NOT WORK FOR MONEY

Following Mike’s dad’s advice, we began assisting him at his office, handling various tasks. While the pay wasn’t substantial, it provided us, as 9-year-olds, with enough to purchase some comic books. However, I quickly grew disillusioned with the arrangement and boldly announced my decision to “quit my job.”

Upon encountering Mike’s dad, I voiced my grievances about what I perceived as the exploitation of young children. It was at this moment that my Rich Dad imparted his first crucial lesson:

The poor work for money. The rich have money to work for them

Many of us are familiar with the routine of working tirelessly for a monthly salary, eagerly anticipating a raise. We dutifully pay our bills while grumbling about the need for change, often pointing fingers at everyone else, including our boss.

We find ourselves constantly feeling like we never have “enough” money, blaming our problems on external factors. But perhaps the real issue lies within ourselves; maybe it’s us who need to change first, rather than expecting others to change around us.

Our focus becomes fixated on our salary, and we inadvertently start working solely for money instead of finding ways to make money work for us. It’s essential to realize that we all have a choice in this matter – whether to be slaves to money or to empower ourselves by making money work for us.

Those who work solely for money find themselves ensnared in a cycle they might not even be aware of. This cycle involves working tirelessly, earning a paycheck, eagerly awaiting vacations, managing bills, clinging to the illusion of job security, and ultimately counting down the days to retirement.

Fear and greed often lure us into traps.

We often find ourselves caught in this trap because of fear and greed. The fear of losing our jobs pushes us into the rat race, while the greed to acquire more things keeps us running in it. This cycle seems never-ending.

The fear of losing our jobs and thus our source of income makes us feel insecure, allowing money (or the fear of not having enough of it) to control our emotions and even our identities.

What’s crucial is to delve deep and assess whether a job is the most effective means of making money in the long term. More often than not, we realize that any job serves only as a short-term solution to a long-term problem.

The only way to break free from this trap of fear and greed is to be mindful of our thoughts. When we consciously choose our thoughts, we’re actively engaging our minds rather than simply reacting to our emotions. It’s about questioning whether there’s something we might be overlooking, rather than merely demanding what we believe we deserve.

I embraced this lesson wholeheartedly, and with Mike, we embarked on creating a comic book lending library. Though it lasted only three months, it allowed us to take control of our finances and step out of the employee mindset. Importantly, the library continued to generate income for us even when we weren’t physically present, demonstrating that our money was finally working for us.

CHAPTER 2: FINANCIAL LITERACY IS NECESSARY

In 1994, at the age of 47, I retired. My money was finally working for me. By then, Mike had taken over his dad’s business and expanded it significantly. Both of us owe our success to the financial lessons taught by Mike’s dad, my “Rich Dad.”

The essence of financial literacy, according to Mike’s dad, boils down to one rule: understanding the disparity between assets and liabilities. While many assume they grasp this concept, the reality is that numerous individuals mistake liabilities for assets. Assets are items that generate income, while liabilities drain it.

Despite achieving considerable success in our professional lives, many of us still lack financial literacy.

Is your house an asset or a liability?

Being financially literate isn’t just about earning money; it’s equally about how we spend it. Many of us mistakenly view our homes as “assets,” but upon closer examination, we realize they’re liabilities. While purchasing a house may come with tax advantages, it also brings additional expenses. Most people finance their homes with 20 to 30-year mortgages. From an accounting perspective, the house remains a liability until the mortgage is fully paid off.

Considering a house as an asset delays our financial understanding. While there’s undeniable emotional value in owning a home, it’s crucial to prioritize building assets that generate income. Any increase in income should be directed towards investments that generate returns, rather than splurging on bigger houses or other expenses.

The key principle to remember is that the wealthy focus on acquiring assets, while the poor tend to spend on expenses, and the middle class often invests in liabilities, mistakenly believing they’re assets.

CHAPTER 3: MIND YOUR OWN BUSINESS

If someone were to ask you what McDonald’s does, you’d probably say “fast food” or “burgers” right away. But the founder, Ray Kroc, saw things differently. He thought McDonald’s was really all about real estate.

Kroc believed that what made a McDonald’s successful wasn’t just the food, but where it was located and the land it sat on. This story, shared by Mike’s dad, taught us our third lesson: Mind your own business.

It’s crucial to grasp the distinction between a profession and a business, as many people use these terms interchangeably. For Ray Kroc, his profession involved selling franchises to make burgers, but his actual business was about acquiring income-generating real estate assets.

When you’re in a profession, you’re essentially working for someone else’s business. However, the goal should be to focus on your own business instead. In a profession, your income typically comes from a salary, but as a businessperson, you aim to use that income to invest in assets that generate revenue.

The typical assets we might think of, like a house bought with a mortgage or a car purchased with a loan, can become liabilities if we lose our jobs due to downsizing or restructuring.

Minding your own business means prioritizing investments in revenue-generating assets rather than liabilities or luxury items. These assets could include stocks, bonds, mutual funds, real estate that yields positive income after expenses like mortgage payments, or any other investment that generates income.

CHAPTER 4: USE THE COVER OF A CORPORATION

The concept of taxation originated in Britain, and unlike many British practices, the US adopted permanent taxation through the 16th Amendment.

Today, taxes have created a divide between two groups: the haves and the have-nots. The have-nots tend to support the Robin Hood philosophy of taking from the rich. Ironically, it’s often the have-nots who end up losing in the battle over taxation.

Those who have traditional jobs and work hard often find themselves taxed more heavily by the government.

In contrast, the haves approach taxation differently. They focus on their businesses, which often come with tax benefits. Unlike the have-nots, who are taxed directly from their salaries, the haves strategically manage their finances to minimize taxation.

What is financial IQ?

To effectively handle taxes, it’s vital to boost your financial IQ. Here are four key actions to improve your financial intelligence:

1. Get a grasp on accounting: Whether you’re running your own business or planning to, understanding the fundamentals of accounting is crucial. This knowledge allows you to read and comprehend financial statements accurately.
2. Learn the art of making money and investing: Understanding how to generate income and invest wisely is essential for financial success.
3. Understand the dynamics of supply and demand in financial markets: Familiarize yourself with how supply and demand impact financial markets to make informed investment decisions.
4. Know the law: Especially, understand how the law distinguishes between individual and corporate income. This knowledge helps you navigate tax regulations and optimize your financial strategies.

When you work for someone else, you typically earn your income, pay taxes on it, and then spend what’s left. However, when you run your own business, you earn your income, spend what you need, and then pay taxes on what’s left after expenses.

CHAPTER 5: THE RICH INVENT MONEY

When Alexander Graham Bell first patented his invention, the telephone, he approached the largest corporation of his time, Western Union, offering to sell his patent and company for $100,000. However, Western Union turned him down. Despite this setback, Bell went on to create a billion-dollar communication industry, with AT&T leading the way.

Just like Bell, we all have an “inner critic” that sometimes makes us doubt ourselves and may even lead us to beg for validation from others, as Bell did with Western Union. But within each of us, there’s also a “brave hero” who dares to build something great.

It was likely this “brave hero” within Bell that enabled him to push past the rejection from the Western Union and forge ahead, ultimately leading to his immense success in revolutionizing communication with his invention of the telephone.

Information is wealth

In today’s world, we’re experiencing extraordinary times. While land was once the measure of wealth centuries ago, now it’s information. Today, wealth isn’t confined by geography. There are abundant opportunities around us, making it crucial to boost our financial intelligence.

So, how do we enhance our financial intelligence? The first step is understanding that money isn’t tangible; it’s a product of our minds. Opportunities to make money stem from a well-trained mind. When our minds are trained effectively, we can spot opportunities that eventually translate into wealth.

Once we grasp that true wealth lies in sharpening our financial acumen, we become more willing to take risks and invest in opportunities that others might overlook.

CHAPTER 6: WORK TO LEARN – DON’T WORK FOR MONEY

Poor Dad was intelligent and well-educated, prioritizing job security above all else. He worked for money, believing it was the safest route. On the other hand, Rich Dad became a millionaire by working to learn.

As Robert Kiyosaki puts it:

“I advise young people to seek jobs based on what they’ll learn, not just what they’ll earn. They should consider the skills they want to develop before committing to a particular profession and before getting stuck in the Rat Race.”

This is exactly what Kiyosaki himself did. After college, he joined the Marines, where he honed essential business skills like leadership and team management. Following his military service, Kiyosaki joined Xerox, overcame his fear of rejection, and became one of the company’s top 5 salespeople. Eventually, he left the corporate world to start his own business.

Chapter 6 of Rich Dad Poor Dad then delves into the critical management skills necessary for business success:

1. Cash flow management
2. Systems management
3. People management

CHAPTER 7: OVERCOMING OBSTACLES

The primary difference between a rich person and a poor person is how they manage fear.

Robert Kiyosaki isn’t referring to everyday fears like visiting the dentist or watching a scary movie. In the book, “fear” relates to the fear of losing money and how to handle it. It’s one of the five main obstacles people encounter on their journey to financial independence:

1. Fear
2. Cynicism
3. Laziness
4. Bad habits
5. Arrogance

These hurdles, and the failure to overcome them, often prevent individuals who have attained financial literacy from building assets that generate substantial cash flow.

Fear: Losing money is a natural part of investing, accompanied by understandable apprehension. Kiyosaki points out that he’s never met a wealthy person who hasn’t lost money at some point. Conversely, many poor individuals avoid investing altogether to prevent any losses. Real estate investors who only act on “sure things” are essentially paralyzed by disguised fear. Those who can’t envision the bigger picture or think boldly rarely succeed in investing or in life.

Cynicism: It’s common for doubts to undermine self-confidence, particularly when friends and family continually highlight potential shortcomings. Concerns about economic downturns, rising interest rates, or tenants failing to pay rent often plague real estate investors. While it’s essential to consider these factors, it’s equally crucial not to succumb to others’ cynicism, lest it paralyze you from seizing opportunities.

Laziness: In today’s fast-paced world, busyness often masquerades as productivity. However, busy individuals may neglect what truly matters, leading to missed opportunities. Successful real estate investors prioritize their well-being and financial health over the frantic pace of the rat race.

Bad habits: Habits shape behavior, with many people prioritizing bill payments over self-compensation. However, paying oneself first, even if creditors must wait, fosters financial resilience and motivates individuals to seek additional income streams, such as investment in real estate.

Arrogance: Investors can be blindsided by their overconfidence, overlooking crucial factors that could lead to financial losses. It’s essential to remain receptive to others’ perspectives, especially regarding money and investments. Ignorance about a subject should prompt individuals to seek education or expert guidance.

Overcoming these obstacles on the path to real estate success requires a balanced approach. Filtering out negative influences and focusing on long-term goals is crucial. Instead of dwelling on pessimism, concentrate on the broader perspective and ask, “What’s in it for me?”

CHAPTER 8: GETTING STARTED

Rich Dad Poor Dad reminds us that “there is gold everywhere, but most people aren’t trained to see it.”

Much of this lack of vision stems from our upbringing and societal norms. From a young age, we’re taught to work hard for someone else, spend what we earn, and borrow more if needed. Sadly, those who conform to this mindset rarely invest the time to cultivate their financial intelligence.

Take real estate investing, for instance. While the average person might spend a week searching without success, a trained investor can spot several viable deals in a single day!

To unlock your financial genius and uncover the hidden opportunities around you, here are 10 steps to follow:

1. Have a clear emotional purpose driving your actions.
2. Understand the power of choice and make deliberate decisions daily.
3. Surround yourself with positive influences and avoid negative people.
4. Learn quickly and develop strategies for making money.
5. Prioritize paying yourself first and manage your finances diligently.
6. Build a strong team and reward them for their contributions.
7. Focus on getting your initial investment back swiftly before seeking profits.
8. Use profits from your investments to afford luxuries responsibly.
9. Find a role model to learn from and emulate their success.
10. Understand the principle of reciprocity: to receive, you must give.

CHAPTER 9: STILL WANT MORE? HERE ARE SOME TO-DO’S

Kiyosaki condenses the key lessons of the book into a practical checklist of actions you can start implementing today:

1. Pause and reassess: Take a break from your routine and evaluate what’s working and what’s not.
2. Explore new ideas: Dive into resources covering diverse and unique topics to spark inspiration.
3. Seek mentorship: Connect with someone who has walked the path you aspire to and learn from their experiences.
4. Never stop learning: Enroll in classes, attend seminars, and devour books to expand your knowledge continuously.
5. Make offers: Don’t be afraid to put forward proposals (with exit strategies) because persistence pays off.
6. Scout for opportunities: Dedicate 10 minutes each month over the next year to survey an area for potential bargains.
7. Strike during market corrections: Profit lies in purchasing, not selling, so keep an eye out for real estate deals when the market dips.
8. Invest in education: Learn the ins and outs of buying real estate wisely by investing in your learning.
9. Think big: Big thinkers seize big opportunities, so set your sights high to maximize your potential wealth.
10. Expand your horizons: Instead of settling for what you can afford, aim for larger opportunities and strategize to make them feasible.
11. Leverage negotiation: Pool resources, buy in bulk, and negotiate volume discounts to optimize your investments.
12. Learn from history: Study the past to glean insights and anticipate future trends, as history tends to repeat itself.
13. Take action: Above all, remember that action trumps inaction. Get out there and make things happen!

CONCLUSION

The main takeaway from “Rich Dad Poor Dad” is that understanding how money works and having financial education are crucial for achieving financial freedom and building wealth. Robert Kiyosaki, the author, emphasizes that the lessons he learned from his “rich dad” were more valuable than the traditional education he received from his “poor dad” when it came to creating wealth.

The book challenges the notion that working for a salary and saving money are sufficient for financial success. Instead, Kiyosaki advocates for investing in income-generating assets like rental properties or small businesses, and using leverage to acquire them.

Furthermore, “Rich Dad Poor Dad” stresses the importance of changing one’s mindset and attitude towards money and wealth. Kiyosaki argues that fear, greed, and a lack of financial education can hinder people from achieving financial freedom, and that taking action to build wealth is essential.

In conclusion, the book underscores the necessity of financial education for attaining financial freedom, as well as the importance of acquiring assets that generate cash flow. It encourages readers to challenge their beliefs about money and to actively pursue wealth-building opportunities.