summary of rich dad N poor dad
Lesson No. 1: The Rich Don’t Work For Money
How Kiyosaki created his first company at the age of 9.
At the age of 9, Robert Kiyosaki and his best friend Mike asked Mike’s father (Rich Dad) to teach them how to make money. After 3 weeks spent cleaning one of Mike’s Dad’s many stores for a poverty wage (10 cents a week!), Kiyosaki couldn’t take it anymore and increasingly began to think about quitting. This is the moment that Rich Dad chose to give him his first lesson about money: some people leave their job because they are not being paid enough. Others see it as the opportunity to learn something new.
WORK TO LEARN
Rich Dad went on to ask the two young boys to work for him for free. By acting this way, he wanted to force them to imagine a way to create their own source of income that was independent of their work for him. The inspiration came to them when they noticed that some comics were left lying around the shop. That’s all it took: they recovered them and opened a library for their classmates, making them pay an entrance fee: 10 cents for 2 hours of reading. They paid Mike’s sister 1 dollar a week to deal with managing their little business. Soon, they were making $9.50 per week, without having to worry about managing their library. Their first company had come into existence!
Lesson No. 2: Why Teach Financial Literacy?
You don’t learn how to become rich in school.
The gap which is currently widening between the richest and the poorest is not due to chance, but the educational system, such as it is built today.
It does not allow this gap to be reduced. Its primary objective is to teach you to enter the working world as it already exists, and therefore, to allow you to become a very good employee.
Not a very good employer. And, that makes all the difference.
Neither does the current educational system teach about the basics of managing personal finances that have allowed the rich to build their wealth?
It is up to you to take responsibility to train yourself and also to use this knowledge to acquire the assets that will allow you to generate income.
The problem is not how to know how much you are earning, but how much you are able to put aside.
The first step towards getting out of the rat race is to:
UNDERSTAND THE DIFFERENCE BETWEEN AN ASSET AND A LIABILITY
An asset is a title or contract that allows its owner to generate income. A liability, on the other hand, is to generate expenditure.
Some examples:
ASSETS | LIABILITIES |
| Real Estate | Morgage |
| Shares | Consumer credit |
| Bonds | Credit cards |
| Intellectual Property | Borrowing |
Poor people manage their money from day to day, the middle class buy liabilities thinking that they are acquiring assets and the rich or future rich build a solid base of assets that generate their income.
The middle classes find themselves in a permanent state of constant financial struggle. Their primary source of income is their salary. And salary increases usually lead to tax increases.
TYPES OF ASSETS:
Here is why your principal residence is NOT an asset:
- You will work your whole life to pay back the mortgage you took out.
- Your maintenance costs represent a significant amount.
- You must pay a property tax.
- Your principal residence may depreciate if the real estate market drops or if you buy at the top of the cycle.
- Rather than investing in an asset that earns you money regularly, you repay your monthly credit to the bank. In other words, the real owner of your home is the bank!
If you genuinely want to acquire your principal residence, you must first generate the income to finance your monthly repayments.
“Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.” ― Robert T. Kiyosaki
Here are a few examples of real assets:
- An apartment that you rent out and whose rent as paid for by the tenant allows you to repay the monthly loan repayment contracted to acquire the property,
- A business that does not require you to be present but of which you are the main shareholder.
In a nutshell, the main steps to get out of the rat race are:
- Understand the difference between an asset and a liability,
- Concentrate your efforts on purchasing assets that generate a steady income,
- Keep your spending and your debts to a minimum,
- Mind your own business!
Lesson No. 3: Mind Your Own Business!
Keep your current job but begin to think about your own Business.
Kiyosaki began his professional career by selling photocopiers for Xerox. Using his revenue, he invested in real estate.
In the space of just 3 years, the revenue generated by his investments in real estate exceeded his salary.
He then decided to leave the company and to take care of his own business full-time.
He knew that it was the only solution to get out of the rat race.
Do not spend all your income. Build yourself a diversified portfolio of assets and you will spend later when these assets make you enough.
Lesson No. 4: The History of Taxes and the Power of Corporations
Income tax first came into being in England in 1874. In the United States, it was introduced in 1913. What was originally a plan to have the rich contribute to the growth and development of the Nation was later extended to the middle classes and the poor.
The rich have a secret weapon to protect themselves from heavy taxes. It is quite simply their company. It offers them a number of advantages in terms of taxation.
The mechanism by which the rich minimize their taxes is the following:
Company owners | Company employees |
| 1. Earn money | 1. Earn money |
| 2. Spend their money | 2. Pay their taxes |
| 3. Pay their taxes | 3. Spend their money |
In other words: PAY YOURSELF FIRST!
Kiyosaki now invites us to take into consideration the main components of what he calls Financial IQ:
- Accounting. You don’t have a choice. If you want to invest in the stock market, you will need to have a few basic notions of accounting to read the annual reports of the companies in which you want to invest. It will be the same if you want to create your own business.
- Investment strategy. This faculty is honed with experience. Chat with investors and observe how they behave. Attend seminars on the subject.
- Market law. Master the law of supply and demand. No company owner can succeed if s/he has not mastered this basic knowledge. Understand the needs of your customers.
- Law. You must have a minimum amount of legal knowledge for your business to grow in the right way. Takes lessons if you have to!
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