Sunday, July 5, 2020

Rich Dad Poor Dad Review


Executive Summary:

Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! is a story about the author who has two fathers. The first was his biological father, his poor dad, and the other was the father of his childhood best friend, Mike, which he considered his rich dad. Both fathers taught the author how to achieve success but with different approaches. 
Rich Dad Poor Dad front book cover
Rich Dad Poor Dad Book Cover
It became evident to the author which the father's approach made more financial sense. Throughout the book, the author compares both father’s principles, ideas, financial practices, and how his real father, the poor but highly educated man, failed against his rich dad in asset building and business insight.

The author compares his poor dad to those who are continually scurrying in the rat race, helplessly trapped in a vicious cycle of needing more but never being able to satisfy their dreams of wealth because they lack financial literacy. They spend so much time in school learning about the world's problems but have not acquired valuable lessons about money because it is never taught in school. His rich dad represents the independently wealthy core of society who deliberately takes advantage of corporations' power and their knowledge of tax and accounting, which they manipulate to their advantage.

The book’s theme reduces to two fundamental concepts: a can-do attitude and fearless entrepreneurship. The author highlights these two concepts by providing multiple examples for each and focusing on the need for financial literacy, how the power of corporations contribute to making the wealthy even wealthier, minding your own business, overcoming obstacles by not fostering laziness, fear, cynicism, and other negative attitudes, and recognizing the characteristics of humans and how their preconceived notions and upbringing hamper their financial freedom goals.

The author presents six significant lessons which he discusses throughout the book:

  • The rich don’t work for money.
  • The importance of financial literacy
  • Minding Your own business
  • Taxes and corporations
  • The rich invent money.
  • The need to work to learn and not to work for money

The Ten Things People Need to Know from Rich Dad Poor Dad Book:

  1. Know a little about a lot. Learn something about accounting, investing, markets, the law, sales, marketing, leadership, writing, speaking, and negotiating. An investment in knowledge pays the best interest.
  2. For most people, their profession is their income. For rich people, their assets are their income. If you want to buy something, you must first generate enough cash flow from assets to cover these expenses. Buy luxuries last, not first.
  3. Excess cash flow generated by assets should be reinvested into other assets. Do not only aim for more income but also strive for more assets.
  4. Create a corporation to protect your assets and reduce tax expenses. An employee earns money, gets taxed on that money, and then spends what is left. A corporation makes money, spends everything it can, and then gets taxed on what is left. This is the most significant legal loophole that productive use, according to the book.
  5. Work to learn, don't work to earn. Find a job where you can learn about stocks, bonds, mutual funds, income-generating real estate, and anything which appreciates over time.
  6. Do not only buy investments. First, invest in learning about investing. You will become what you study, so choose your study materials carefully. Find people who are the best in their field. Then review and emulate them.
  7. Failure inspires winners and defeats losers. When something does not work out the way you planned, let it inspire you to try a different approach. Learn and move on.
  8. Be in control of your emotions. Do not let fear or opinions of the general public dictate your actions. When stock prices decline, people run away. However, when the local supermarket has a sale, people buy as much as they can.
  9. Surround yourself with people who are smarter than you, and pay them well. Telling yourself, I can't afford it shuts down your brain. Asking how I can afford it opens up your brain and triggers your financial genius to develop a creative solution.
  10. Listening is more important than talking. Do not always argue and think with your mouth, but instead ask questions and absorb new ideas.
Lesson Learn From Rich Dad Poor Dad Book
Lesson Learn from this book.

Full Rich Dad Poor Dad Book Review and Book Summary:

Rich Dad, Poor Dad:

Robert Kiyosaki and Mike lived in Hawaii when they were both nine-year-old kids. Robert had a poor dad that was a college teacher with plenty of debt. Mike's dad was a wealthy mogul and was the wealthiest guy on the island of Hawaii. Mike's dad gives the boys advice on how to be productive.

The first lesson Mike’s dad made the boys experience was hatred of the “Rat Race.” He was able to achieve this by making the boys work in one of his grocery stores for three hours, making ten cents an hour. Within a few weeks, Robert was tired of being exploited for labor and demanded that he receive a raise.

Instead, Mike’s father cut his pay and told him to work for free. Eventually, both boys were tired of being under-appreciated and unpaid. They met individually with Mike's father. In their meetings with a rich dad, he apologized for lack of pay and offered them either the moral of the lesson or a pay raise. Both boys chose to learn the moral of the experience, while rich dad offered them pay increases.

He started at twenty-five cents, a dollar, two dollars, and even five dollars, which would have been considered a large amount of money for an hourly wage. The boys remained strong with their decision to learn the moral of the lesson. The lesson to get out of the “Rat Race” and instead of spending your whole life working to put a little money in your pocket and a bunch of money in someone else’s pocket. Out of all the lessons that were taught to the boys, this one was the most important.

The Rich Don’t Work for Money.

The author tells his readers to forget the notion that life teaches. He says, “the only thing that life does is push you around.”

This chapter talks about people who are more comfortable playing it safe because they were not taught early to take risks. The author develops the ideas that the poor and the middle class work for money. Fear and greed cause poverty and the importance of using one’s emotions versus thinking with emotions. The author also stresses that opportunities in life come and go. The rich recognize them instantly and turn them into gold bullions. Others do not see these opportunities because they’re too busy seeking money and security. As the author says, “that’s all they’re going to get.”

Why Teach Financial Literacy:

The story of Robert and Mike continues in the 1990s, and both, now adults, have made incredible leaps and bounds with regards to their finances and their socioeconomic status. Mike was able to take the lesson from his father and apply them to his life. He took control of his father’s vast business and increased every aspect of the empire and is currently raising his son to take control of the company once he retires. 

As for Robert, he was able to retire at the age of 47 with his wife, Kim. At a business meeting at the Edgewater Beach Hotel in Chicago, Charles Schwab, Samuel Insull, Howard Hopson, Ivar Kreuger, Leon Frazier, Richard Whitney, Arthur Cotton, Jesse Livermore, and Albert Fall met to talk about different investments and money schemes. Twenty-five years later, a report stated that a vast majority of those extremely wealthy people that met in Chicago either ended up in jail, dead, or penniless. The principal idea to take from these unfortunate entrepreneurs' results is that you need financial literacy to be safe.

The idea that was represented with the big 1920’s entrepreneurs is still prevalent today, with some of the professional athletes making poor financial decisions and ending up with next to nothing. This specific lesson teaches people not to be wise with your money once you have it, but rather be smart with your money before you have it. According to Robert, there is one rule that can help a person build a strong foundation. Knowing the difference between an asset and a liability, and make sure that you only control assets.

Robert believes that financial literacy begins with a working knowledge of accounting. It is essential to know the difference between assets and liabilities. To make these two terms understandable to readers, the author simplifies these two concepts to motivate them to purchase assets to solidify the asset column, while keeping the liabilities to a bare minimum. The author states that poor people remain poor because they do the opposite.

They pile up on their liabilities and have zero assets so that their balance sheets and income statements look out of whack. People have to understand that it’s not how much they make, but how much they keep according to the author, and this is an essential principle that this chapter focuses on.

Mind your Own Business:

In this chapter, the author introduces the concept of real estate investing and uses McDonald’s as an example. He points out that McDonald’s may not make the best hamburgers globally, but owns the most valuable intersections and streets in America. The author remarks that individuals need to mind their own business if they wish to become financially self-sufficient. They shouldn’t mind their employer’s business. They should strive for ways to grow their boss and nurture their businesses.

The author continues his discussion on building assets. To him, real assets are anything with value such as stocks, bonds, mutual funds, income-producing real estate, notes, royalties from intellectual property, etc.

This chapter also reveals the author’s investment preferences, which are real estate and stocks. For real estate, he says he starts small and trades his properties for bigger ones and then delays paying taxes on capital gains.

The History of Taxes and the Power of Corporations:

The author states that the poor let the big corporations manipulate them, whereas the rich know how to use big corporations. This means that the rich possess the knowledge to use the power of the corporation to protect and enhance their assets.

The advantage of a corporation versus that of the individual lies in how corporations pay taxes, according to the author. He makes this point clear. Individuals earn money, pay taxes on that money, and live with what’s left. The corporation, on the other hand, earns money, spends everything it can, and is taxed on anything that’s left.

The author adds that individuals may not be aware of how much they’re being manipulated. They work from January to mid-May to enrich the government by paying taxes on their income. In the meantime, the rich are hardly taxed.

The author recommends developing one’s financial IQ as a way of leaving the routine of daily existence. This is accomplished by gaining knowledge of accounting, investing, understanding the markets, and the law. He says, “being ignorant gets you bullied whereas being informed translates into you have a fighting chance.”

The Rich Invent Money

In this chapter, the author discusses the importance of education. The author is clear by saying, “a trained mind is a rich mind.” In his analysis, there are two types of investors, those who go for the packaged investment and those who customize investments to suit their objectives.

The author develops the concept of self-doubt. He says that each person is born with talent, but that talent is suppressed because of self-doubt and fear. He says that it’s not necessarily the educated, smart people who get ahead but the bold and adventurous. People never get ahead financially, even if they have plenty of money because they have opportunities that they fail to acknowledge. Most of them just sit around, waiting for an opportunity to happen. The author’s idea is that people create luck. They should not wait around for it. He says it’s the same with money; it has to be created. The author encourages people to hire people more intelligent than they are because by capitalizing on the knowledge of others, and intelligent individual builds his own knowledge base and therefore has more power over those who don’t know.

Work to Learn, Don’t Work for Money.

This is the chapter where the author talks about the skills individuals need to develop for financial success. 

Robert gives an example of a young woman who had a Master’s Degree in English Literature and who was offended when it was suggested that she learn to sell and do direct marketing. After all the hard work for her degree, she didn’t think she would have to stoop so low to learn how to be a salesperson. The author uses this example to emphasize that there are other skills people need to cultivate to help them on the road towards financial freedom. 

The author mentions management skills. He says individuals need to know how to manage cash flow, systems, and people. To that, he throws in selling and marketing skills. He puts his attention on communication skills saying there are many people who have the scientific know-how, but they fail miserably in communications. These are the people who are “one skill away from great wealth.”

Overcoming Obstacles:

The opinion of the author is that five personality traits hamper human beings, which are fear, cynicism, laziness, bad habits, and arrogance. He explains that while it’s normal to have fear, what matters is how one handles it. The author shares his thought about his particular fondness for Texas and Texans: “When they win, they win big, and when they lose, it’s spectacular.” The author maintains that it’s not merely a question of balance but also focus. 

He recommends that the Chicken Little’s of the world be ignored. They’re only concerned about the sky falling and spending the rest of their lives in grief. He says he constantly hears people saying they want to be rich, but when it’s suggested that money can be made from real estate, their initial reaction is, “but I don’t want to fix toilets.” The author believes it’s ironic that they’re more concerned about trivia like fixing toilets rather than what lies ahead in real estate. 

As a final point, the author states that it is healthy to be greedy, so when faced with a decision, a person must always ask what’s in it for me.

Getting Started:

This chapter serves as a section on tips to create and build personal wealth. His first tip is, find a reason greater than reality to motivate you. What he means by this is to wake up the financial genius in oneself by empowering the mind. He says that people must have a strong purpose for living. The next tip is to feed the mind. By feeding the mind, the author contends that people acquire the power of choice.

The author also advises people to choose friends carefully. He says to avoid people who constantly proclaim that the sky is falling and instead encourages readers to spend time with people who enjoy talking about money because they may have valuable lessons to share. The author also believes that people should study one field, and then go out and learn a new one.

Another tip that the author observes most people don’t practice is paying yourself first. Even if short of cash, people must pay themselves first. This goes hand in hand with managing three things efficiently; cash flow, people, and personal time.

Another tip the author gives is being generous. He thinks it makes a lot of sense to pay one’s broker well as he’s an ally and your eyes and ears to the market. The author suggests having heroes. They are indispensable in life because they not only inspire; they also make it seem so easy. They stimulate the human mind into thinking, “If they can do it, why can’t I?”

“Teach, and you shall receive” is another tip that the author shares. “There are powers in this world that are much smarter than we are. You can get there on your own, but it’s easier with the help of the powers that be. All you need to be is generous with what you have, and the powers will be generous with you.”

Still, Want More? Here are Some to do’s:

This chapter is sort of an additive to the previous chapter. It gives readers additional tips to help them reach for financial rewards. One tip is to stop doing what you’re doing that if it’s no longer working. The author encourages readers to look for new ideas, to pick the brains of individuals who have the experience and who have already done what one aspires to do. He advises on keeping the learning curve alive, taking courses, buying tapes, and attending seminars.

In looking for real estate investment opportunities, the author recommends looking in the right places. One way of doing this is to jog around the neighborhood one is interested in. People can acquire real estate even if they don’t have sufficient funds for the down payment. In fact, with a bit of cleverness, the author says people can even make money with no capital.

Personal Insights:

In my opinion, I think the author is a talented con artist. Some people love him, and some people hate him, but he’s the one laughing all the way to the bank. In the February 2003 issue of SmartMoney magazine, Kiyosaki said, “Is Harry Potter real?

Why don’t you let Rich Dad be a myth, like Harry Potter?” In other words, the entire book which Rich Dad, Poor Dad, was sold was completely made up. Robert Kiyosaki is a personal development scam artist that has been earning people’s money with books and seminars, but I don’t think writing books and speaking at seminars is illegal.

You have to admire the guy for finding his niche and making tons of money with it.

Reading this book review made me think differently about the topic in these ways:

  1. Instead of living below your means, earn more income to subside your debts.
  2. Reading this book made me realize that I’ve always worked for “the man.” I’d like to work for myself so that I may reap all the rewards for my hard work instead of getting paid hourly or even just a portion of the profits.
  3. Earned income gets taxed way more than stocks. Reading about taxes in this book has made me want to strive to learn ways to lower my taxes.

I’ll apply what I’ve learned in this book in my career by:

  1. I would like to learn everything I can about lowering the taxes I pay. The rich seem to pay the least amount of taxes, so I would like to try to emulate that aspect of taxes.
  2. I would apply the lesson of making money work for me instead of working for money. Buying stocks and bond seem to be a lot of fun, especially if I’m making money.
  3. I would have to work for a while in my career to earn money but would like to work to learn as outlined in the book. Learning different fields and being a jack of all trades and a master of none is where I’m striving to be.
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AboutHaasim A Shethwala

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