Rich Dad Poor Dad - Book Summary & Review

Rich Dad Poor Dad

Robert T. Kiyosaki & Sharon Lechter

Written by Robert Kiyosaki and Sharon Lechter in 1997, this inspirational book highlights different attitudes towards money, work and life. The author advocates the importance of financial independence and shares a variety of practical tips to achieve it.

Main Ideas of the Book

Most of us know what the phrase rat race refers to, but if asked, how would we define it? One definition is “The endless routine of working for everyone but yourself.” Most of us are a part of rat race and most of us hate it. Then why do we keep racing?

For example, the mantra “Go to school, study hard, and get a good job.” We still teach this mantra, even though it is outdated. Today, it is no longer a recipe for a life free of financial struggles.

Nevertheless, we still follow this mantra out of fear of breaking the expectations of the society. As a result, we may be avoiding poverty, but we’re certainly not getting any wealthier.

Fear of society’s disapproval prevents us from leaving the “rat race” and growing wealthy.

When it comes to money, everyone experiences two basic emotions: greed and fear. If one has money, they’re likely to focus on all the new things it can buy (greed). If they don’t have it, they worry that they might never have enough (fear).

People who are ignorant about how to manage their finances are very prone to letting these emotions drive their decision-making.

When a person is financially ignorant, their emotions start taking the wheel. The fear of losing money is so powerful, it hinders us in investing in stocks or other assets because of the risks, even if such investments will be beneficial in long term.

At the same time, greed inspires us to spend our increased salary on a better lifestyle. However, such upgrades result in bigger mortgage which ultimately undo our raise.

This is how fear and greed hinder one from becoming wealthy in the long term.

So how can we counter these powerful emotions?

We need build up our financial knowledge about things like investments, risk and debt. Despite being vital for prosperity, we receive no training in financial intelligence.

We think to become rich it’s enough to be talented and capable. In reality, the world is full of such people, and most of them are poor. What they are missing is financial intelligence, a complete aptitude for financial subjects like accounting, investing, etc.

Unfortunately, we’re raised without this intelligence. Our school systems don’t train us in financial intelligence. This lack of training in is a problem not only for today’s youth but also for highly educated adults, many of whom make poor decisions with their money. Many people lack retirement planning which shows their poor handling of money matters.

Clearly, society has left us poorly equipped in terms of financial knowledge, and so it is up to us to educate ourselves.

Financial self-education and a realistic appraisal of your finances are the building blocks of growing wealthy.

Regardless of one’s age, the best way to get started is by appraising our finances, setting goals, and then acquiring the education necessary to reach them.

First, take an honest look at your current financial state. Only after this, you’ll be able to set realistic financial goals.

The next step is to then start building your financial intelligence. This will be an investment in the greatest asset available to you: your mind. Enrolling in finance classes, reading books on the topics, trying to network with experts; are some ways in which one can improve their financial knowledge.

To become wealthy, you must learn to take risks.

If we want to change our current financial state, we need to start handling your finances differently.

The biggest change we need to make is learning to take risks. All financially successful people are successful because they manage rather than fear risks.

Instead of playing it safe, try investing money in stocks or bonds. While these are more risky than typical bank accounts, they also generate much, much more wealth. Higher the potential for return, higher the risk.

The road to wealth is long, so you must keep yourself motivated.

The journey to wealth is long and trying. It’s easy to lose heart when you hit a hurdle. In order to achieve your financial goals, you’ll need to find ways to stay motivated.

One method to boost motivation is to create a list of “wants” and “don’t wants”.

Another good way to stay motivated is to spend money on yourself before paying your bills.

This method will also sharpen and develop your financial self-discipline, which is a key trait of all financially successful people.

For outside inspiration, research the life stories of wealthy people. Reading about their struggles and how they overcome it will help keep you ambitious and motivated.

Laziness and arrogance are two personality pitfalls which work against you in less-than-obvious ways. We think of laziness as slumping around and doing nothing, but in fact laziness is also avoiding things that need to be done.

Similarly, arrogance is a distressing weakness. In the case of financial ruin it is defined as “ignorance plus ego”; a combination of poor financial knowledge and an ego too proud to admit it. Arrogance is a particularly dangerous flaw while making investments.

Laziness and arrogance needs to be kept in check as they can drive even financially knowledgeable people to poverty. Only invest in assets, which put money in your pocket; and avoid liabilities, which take money out. An asset is something that makes you money, while a liability costs you money. Knowing the difference is necessary to ensure that we’re making strong investment decisions.

Clearly, it’s more likely you’ll become wealthy if you mostly invest in assets. Ensuring that you know the difference between an asset and a liability means you’re able to soundly judge what to invest your money in and what to avoid.

Your profession pays the bills, but your business is what will make you wealthy.

Most people consider their profession and their business to be one and the same thing. When it comes to personal finances, though, there’s a difference:
Your profession is whatever you do 40 hours a week to pay the bills, buy groceries etc.

Your business, on the other hand, is what you invest time and money in to help grow your assets.

A profession only cover your expenses; it alone can’t make you wealthy. To achieve wealth, building a business is a must.

Profession often funds business initially; therefore, it’s wise to keep your job until your business starts to show sustainable growth. When your assets – and not your job – becomes your main source of income, that’s when you become truly financial independent.

Understand the tax code to help you minimize your taxes.

Everyone knows that taxes detract from personal wealth, but most people don’t bother with ways to minimize the taxes they pay. There are many ways this can be legally achieved.

One way to reduce taxation is to invest your money through the coverage of a corporation. The money you make will be taxed much more leniently that way.

There are other ways in which one can minimize taxes, it’s just a matter of becoming aware of the many loopholes and benefits of the tax system in your country.

Ruchika Verma

You can purchase this wonderful book at Amazon