Rich Dad Poor Dad: What The Rich Teach Their Kids About Money - That the Poor and Middle Class Do Not! (Book Summary)

March 16, 2018

Rich Dad, Poor Dad by Robert Kiyosaki recently marked it's 20 years, but until today this is one of the best books that advocate the significance of “personal finance literacy”. In this book, Kiyosaki commendably demolishes the delusion that only experts can deal with investments and wealth management; he teaches complex personal finance concepts in the simplest narration, that anyone can understand.

The author tells his own life story to educate the readers. As the title says, Kiyosaki introduces his two dads: one was his real father- who was well educated but financially deprived (Poor Dad); the other (Rich Dad) was the father of Kiyosaki's close friend - who was a school drop-out but developed as a self-made millionaire.

These two "dads" are nothing but the depictions of the two of the different paths we all decide in our financial life - we either join the "Rat Race" of chasing job/salary, or we train ourselves to overcome it.

Most of us understand the difference between "income" and "expense" - it's very straightforward but we do not understand the difference between "assets "and "liabilities". Assets are something that works for you and generate income for you even when you are not working.

For example: a real estate investment that produces mere $100 a month of income may be an "asset", whereas your large ultra-modern house for which you're paying a lot of mortgages every month is not really an asset, but it's a "liability". Below are the 3 key takeaways from the book.

Lesson 1: What kind of education we’ve got?

The first lesson is about: what kind of education we’ve got and what we teach to our kids when they start off?

Kiyosaki's poor dad always told him, “go and get the best possible education so that you can get a great job”. His poor dad just fully believed in the conventional education system; he himself was a well-educated Ph.D. graduate but was totally uninformed when it came to finances. He just believed in fully believed in conventional education. On the other hand, his rich dad who had only an eighth-grade education, but always said, “go and get the best possible education so that you can start your own business or buy a business and give other people jobs

This huge difference in mindset between rich and poor dads was crucial; Kiyosaki acquired the mindset of his rich dad, which he believes is the first step for his success. So, it’s really an important lesson to understand that our conventional education makes us ready for jobs, not for business. We need to think about educating ourselves financially too; Accounting, investing, markets and business laws, are not only for finance experts, but they are part of everyone’s day-to-day life.

Lesson 2: Who we work for?

Let's say you've graduated from college what kind of work should you do/look for? Poor and middle-class people put all their best efforts/energy to learn how to work for money, but they just work for “others” all through their life.

The first person they work for is their employer. Then they work for the government, because the government takes taxes as soon as they receive an income and then they work for the bank because they buy a big house they have a big car so they're paying the mortgage they're paying interest to the bank. So only after they have worked for the employer and the government and to the bank, they actually start to work for themselves and still wonder why they're not rich 😊

Whereas, the rich don't work for money; but money works for them. Rich dad's mantra was work hard to acquire and improve on their assets (like stocks, real-estates, ..etc) and these assets produce income. Then they also leverage the business/corporate taxation schemes to their advantage!

Lesson 3: How do we spend our earning?

The 3rd and important lesson is about how do we spend/invest our hard-earned money.
➤ Poor people: earn hard, as soon as income comes in it goes out into expenses they never put the income into an asset. They never pay themselves at all. 
➤ Middle class: spend up significant % of their income on liabilities; and the liabilities are just become expenses (like the mortgage), in the end, they have very limited assets, maybe just the retirement savings or a small house whether they live-in. This means the middle-class people are paying themselves last!
➤ however, the rich pay themselves first! As soon as, any income comes they first invest a portion of it into their assets; and then the remainder of their income is used for expenses and liabilities (which is also always in a line that they get their expenses back, taking advantage of tax laws/relaxations).

So, while the poor and the middle class prioritize expenses and liabilities, the rich prioritize assets. The rich ensure that their expenses are much lower than their income and that their liabilities are much lower than their assets!

These are the three most important lessons the book teaches. You don’t need to master them, but a mere understanding of what you’re doing and where you’re standing is itself a great 1st step towards your financial success.

What I say: Many of the thoughts discussed and the ideas proposed in the book are perceived a bit "controversial" and "capitalistic"; this book is not a favorite for the people who have “equalitarian” mindset. But still, I would recommend everyone to read, not just for waking-up the entrepreneur within you, but also to kindle the ability to think differently than an average salaried employee.

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  1. I have seen this book around too. I agree that it can be controversial. But really being your own boss is the way to go in my own opinion!

  2. Thanks for the review. It looks like a very informative book!

  3. I've heard a lot of good things about this book. Thank you for the summary.