Rich Dad Poor Dad 5 Minute Summary
Rich Dad Poor Dad is the story of two fathers; one has a collection of degrees and diplomas but is financially poor and the other is a high school drop-out but financially wealthy. The book explains the financial habits passed on within families that help families with resources achieve upward mobility, while families with less capital struggle to do the same. Financial literacy, acquiring wealth through assets and financial freedom are all discussed in detail, making it a fascinating read for anyone who has ever wanted to become financially independent.
Key Takeaways from “Rich Dad Poor Dad" by Robert T. Kiyosaki
Takeaway #1: Why We Struggle To Leave The Rat Race Behind
Despite hating being caught up in the rat race which has you working incredibly hard for the reward (money) to go to your boss, the government, and on bills, people are fearful of breaking free of this cycle due to a fear of losing it all.
Takeaway #2: Fear and Greed
These are the two emotions that we have around money that cause us to make poor financial decisions. An example of these emotions in action is, imagine you get a pay rise at work. The fear of losing this extra money prevents you from investing it in stocks and shares or other assets that could bring your wealth in the future. Meanwhile, greed takes over and has you buying a new car or a new house with that extra money because it seems a 'safer' and more tangible, despite there now being a larger mortgage, higher gas bills, and so on. Which leave you back at square one needing the next pay check.
To overcome this fear and greed you must take it upon yourself to increase your financial knowledge because no one else will. Learn accounting, learn how to save, learn how to invest, learn all the terminology, such as what “compound interest” means, and learn how to secure your future without a pension fund. The earlier you educate yourself financially, the better. The later you leave it, the more catching up you have to do.
Takeaway #3: Taking Risks
You probably learned from your parents or from the media that it is bad to take risks where money is involved (no one wants to lose their fortune). This is the exact opposite of what the rich are doing, everyone who is financially successful has taken a risk in order to get to where they are.
To grow your money you cannot play it safe and keep it in a regular cheque or savings account. This is where the risk of investing, whether in stocks and shares or property, comes into play. Do you want to remain where you are or do you want to take a calculated risk that could grow your income substantially?
Takeaway #4: Keep Motivated
The road to financial abundance is often a long and winding one, you need to be in it for the long-run and keep going despite the hurdles the pop up along the way. There is no “get rich quick” method.
Create a financial list of what you want and what you don't want. It might be that you want to pay off your mortgage within 5 years, that you want to be financially independent or that you don't want to end up in the same financial situation as your parents. When you get discouraged, pull this list out and remember your reasons for increasing your wealth.
Another way to motivate yourself, although this must be done with caution, is to pay yourself first before your earnings goes to everyone else. If you paid your bills first you would be unlikely to motivate yourself to earn the extra money to pay yourself afterward, figuring that you'd postpone until next month... and the next month. When you look after yourself first, whether that's buying yourself some financial education (a book or a course) or something more frivolous, you'll have to come up with the money to pay the bills later.
Takeaway #5: Avoid Laziness and Liabilities
There are two pitfalls to watch out for as you go further along the road of financial success. Laziness can look, from the outside, like you're being very productive but you may actually be burying your head in the sand. You also have to be aware of arrogance, this can be defined as ignorance + ego and will get you into financial trouble with shady 'too good to be true' investments. Such as these “get rich quick schemes”.
Be sure to know the difference between an asset (something that makes you money I.e. income from rental properties, a business, stocks, bonds, and royalties) and a liability (something that costs you money i.e. a house bought with a mortgage that requires upkeep.)
Takeaway #6: Why You Must Build a Business
A profession and a business are two different things when discussing personal finances. Your profession pays your day-to-day living costs, your business grows your assets. Your profession and your business, or side hustle, can be two completely unrelated things. Let's use the example that your profession is in real estate and your business (funded by the leftover money from your profession) is trading stock. You know that your day-to-day expenses are covered, but in order to grow financially you need to grow your assets which is done through your business. Eventually, you'll be able to drop your profession and live on the income from your assets, but only if you've learned and understood the legal loopholes of the tax system in your country – Don't hand your money away when it's not necessary!
Key Lessons from Rich Dad Poor Dad
"Poor Dad" represents the traditional view on work and money - go to university, get a 9-5 job, climb the corporate ladder. This worked well in the 20th century, but times have changed.
"Rich Dad" represents the independently wealthy views on work and money - build assets, invest wisely, work for salary only if you enjoy it and have to.
The fear of not having money makes people work hard, which in turn leads to compensation through frivolous spending. This is the "Rat Race", a never ending loop between fear and greed.
Fear of losing makes you play safe. "Failure" is a learning experience that will make you stronger and wiser. When you recognize a great opportunity, exercise the courage to take it.
The rich don't work for money – they make money work for them. They get rich by owning assets.
Every dollar that you spend (and not invest) is a dollar that does not work for you. Think of each dollar as your employee that can work 24 hours a day.
Buy assets, not liabilities. An asset is anything that produces income, appreciates in value, and does not require your active management. For example, stocks, bonds, income-generating real estate, businesses that generate profit, royalties from intellectual properties such as book, music, etc.
Investments can often be deceptive. They can look like an asset, where in reality they are liabilities. A house, for example, is a liability if it's taking money out of your pocket (your own house) and an asset when it's bringing in money (rental properties). While real estate can appreciate over time, there is no guarantee of this.
Staying busy is often a way to avoid emotions and things you don't want to face in your life.
Condemning money is a trained defence. Embrace it as an empowering force.
Financial intelligence (e.g. investing, accounting, marketing, sales, communication, negotiation, etc) is key. Always develop it. Your financial knowledge, very much like money, compounds over time.
The journey to financial independence is less about how much money you make and more about how much money you keep.
RICH DAD VS. POOR DAD MINDSET
Best Quotes from Rich Dad Poor Dad
"Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success... In school we learn that mistakes are bad, and we are punished for making them. Yet, if you look at the way humans are designed to learn, we learn by making mistakes. We learn to walk by falling down. If we never fell down, we would never walk."
"Whenever you feel ‘short’ or in ‘need’ of something, give what you want first and it will come back in buckets. That is true for money, a smile, love, friendship."
"Stop blaming me, thinking I'm the problem. If you think I'm the problem, then you have to change me. If you realize that you're the problem, then you can change yourself"
"Workers work hard enough to not be fired, and owners pay just enough so that workers won't quit"
"People struggling, often working harder, simply because they cling to old ideas. They want things to be the way they were; they resist change."
"It’s fear that keeps most people working at a job. The fear of not paying their bills. The fear of being fired. The fear of not having enough money. the fear of starting over... Most people become a slave to money… and then get angry at their boss."
"I can't afford it' shut down your brain...'How can I afford it?' opened up the brain."
"Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets"
― Robert T. Kiyosaki, Rich Dad Poor Dad - What The Rich Teach Their Kids About Money