5 Lessons From Rich Dad Poor Dad by Robert T.Kiyosaki

 

Anyone who is interested in personal finance or wants to understand why the rich are getting richer while the poor are struggling must read the book Rich Dad Poor Dad. This book is known as the #1 personal finance book of all time and can be a stepping stone in the path of financial literacy.

Robert has explained how he got the choice of contrasting points of view: one of a rich dad and one of a poor dad. Poor dad was highly educated: He was a Ph.D. holder and went on to Standford University, University of Chicago, and northwestern university to do his advanced studies. On the other hand, Rich Dad never went to school after eighth grade.

In this blog, we'll highlight the six important lessons from Rich Dad that changed Robert's life and may change the way we look at money. Rich Dad has shared his nuggets of wisdom with Robert and explained the power of financial education.

Money is one form of power. But what is more powerful is financial education. Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth.

--Rich Dad

Lesson 1: The Rich Don't Work for Money

Rich Dad says: Poor and the middle-class work for money and Rich have money to work for them.

• A job is a short-term solution to a long-term problem. You can't be rich by doing a job only. Getting good grades at school can land you a secure job but can't make you financially free. Take risks and don't be afraid of that otherwise, you will end up being a slave to money.
• For E.g., If you have a vision of doing a business, don't fear losing your job, and don't be ignorant of your vision, take risks, be truthful, and use your mind and emotions in your favor, not against yourself.

The main cause of poverty or financial struggle is fear and ignorance, not the government, or rich, or the economy. It's self-inflicted fear and ignorance that keep people trapped.

--Rich Dad

• Working eight hours a day at a job and then waiting for a paycheck is like a drug that kills our instinct of taking risks, and this avoidance does not allow us to come out of our comfort zone.
• We all are controlled by two emotions: Fear and Greed. Fear of not having money motivates one to work hard and once a paycheck is received, there is greed for all the amazing things, money can buy. Only money is not a problem but our spending habit also plays a major role. If more money is offered to you then you will increase your spending and that is known as Rat Race.
• Rich Dad says don't be a part of Rat Race. Always try to control your thoughts and emotions. When emotions go up, intelligence goes down.
• Working for money will make you blind and you may miss the opportunities of multiple sources of income. The more you will train your mind, the more it will think beyond money.
• Humans without imagination are still looking for a job that can be easily replaceable by robots and technology.

Lesson 2: Buy Assets, not Liabilities

Poor & middle class have more liabilities than assets, all of their income goes into the fulfillment of liabilities only. Despite having sources of income, Rich focus on their assets, and their assets are enough to cover their expenses. There is a difference between Assets and Liabilities. Rich people acquire assets and poor acquire liabilities that they think are assets.

Assets: It is something that puts money in a pocket whether someone works or not. Rich always acquires assets and focuses on acquiring or building assets.

E.g., Stocks, Real-Estate, Intellectual-property(Blog, YouTube), Bonds, etc.

Liabilities: It is something that takes money out of the pocket. Mostly, the poor and middle class spends their life in buying liabilities.

E.g., Mortgage, credit cards(if not paid fully in each month), house, etc.

• Poor don't have neither Assets or liabilities, they only spend on expenses. All their income goes into the fulfillment of expenses only.
• The middle class has the wrong definition of assets, they have liabilities that they consider as assets, and all their income goes into the fulfillment of liabilities first, and the remaining goes into expenses.
• The rich focus on the assets column that generates more than enough income to cover expenses and their income is reinvested into the assets column. Hence, their assets column becomes stronger. If someone's assets can generate enough cash flow to pay the expenses, then they can be considered as wealthy.

Wealth is a person's ability to survive so many numbers of days forward-or, If I stopped working today, how long could I survive.

--R. Buckminster Fuller.

Wealth is the measure of cash flow from the assets column compared with the expense column.

Lesson 3: Mind Your Own Business

People who struggle financially are people who have spent their whole lives working for someone else. Our education system plays a major role in this, they are producing workers, not thinkers, they focus on memory, not intelligence. Being highly educated and professionally successful will not make you financially literate. Both are different things.

If someone is really interested in doing business, they should avoid a fiscally conservative approach that is- I can't afford to take risks. It is an example of financial illiteracy.

Minding your own business doesn't mean everyone should start doing business but it also means keep doing your job and start buying real assets, not liabilities that have no real value.

For E.g., A newly bought car loses nearly 25% of its original price, once you drive it off to home.

Rich Dad says to keep expenses low, minimize liabilities and keep building your assets strong.

If you put a dollar into your assets column, never take it out. Hold it and let compounding multiply it. It will work 24 hours a day and will make your asset column stronger.

Never be in a hurry to buy luxuries first, make it a last priority. The biggest luxury is a reward when someone gets it through developing/investing in their asset column.

Lesson 4: Keep Investing & understand the corporations

Investing is a process of "money making money". Keep investing and it will protect you from lawsuits made by the government to take your hard-earned money in the form of taxes. Money isn't about saving but it's all about investing. Saving stagnates the growth of money but investing multiplies the money. Investing creates long-term wealth.

A person who understands the tax advantages and protections provided by a corporation can get rich so much faster than someone who is an employee or a small-business sole proprietor.

--Rich Dad

Employees working for companies have to pay taxes on whatever they earn and live on what is left. Rich understands the legal tax loopholes. They spend everything they can and pay taxes on anything that is left. Study taxes and corporations:- Biggest secret of the Rich.

Section 1031 of the Internal Revenue Code

This section allows a seller to delay paying taxes on a piece of real estate that is sold for a capital gain in exchange for a more expensive piece of real estate. Taxes are applicable only if money touches your hand as long as someone is trading up in value, they will not be taxed on the gains until they liquidate.

This section is applicable to investors who are selling a property and reinvesting that amount in other properties. It can't be used by buyers/sellers of personal homes. It is also known as like-kind exchange or starker exchange/starker loophole.

Lesson 5: Work To Learn-Don't Work For Money

Here learning means acquiring skills to avoid the trap of the Rat Race. Rat Race can't be avoided by doing a Job only. In fact, Rich dad says JOB is an acronym for Just Over Broke. Job security can't be granted by companies, in situations like pandemics, and recession, people are losing their job.

There is a horrible management theory like:

Workers work hard enough to not be fired, and owners pay just enough so that workers won't quit.

Humans need to evolve. Since we cannot predict when a skill will be most profitable and obsolete in this dynamic world, it's crucial that we are open to learning any new skill.

The main management skills needed for success are:

1. Management of cash flow
2. Management of systems
3. Management of People

Skills like communication(writing, speaking, & negotiation) with sales and marketing are very crucial in today's world.

Conclusion

Rich Dad Poor Dad is surely a worth-reading book for every beginner. This blog has just given the top 5 lessons from the book but it doesn't mean it is the summary of the book. From understanding the difference between assets and liabilities to corporation rules, it unravels all the differences between the mentality of a Rich Dad and a Poor dad.

Note: All the concepts, theories, and ideas are taken from Rich Dad Poor Dad book itself.