Rich Dad Poor Dad Book Summary
Updated: Feb 7, 2021
How can I become rich?
Well, go to school, study hard, earned a degree, get a job, and then work for money.
I'm here to tell you this is bullshit. You know, most people will spend the best years of their lives working for money, not really understanding what is it they're working for.
This is Robert Kiyosaki, estimated to have more than 80 million dollars. He wasn't always rich. In fact, his family was like most people who worked for money and oftentimes struggled with money. So then how did Robert become so rich today? Let's take a look as he explains in his best-seller book called Rich Dad Poor Dad.
Robert Kiyosaki was born in Hilo, Hawaii, in April 1947. At the age of nine, he went to the same school that rich people sent their children. Robert saw those rich kids had a collection of toys, bicycles and so many other cool things that his family couldn't afford. So one day, Robert asked his father, who had a Ph.D. and multiple degrees with honor: “Dad, can you tell me how to get rich?” Unfortunately, his dad didn’t know the right answer, because he wasn't rich himself, so he responded with: “well, use your head son, stay in school, earn good grades so you can find a safe and secure job and make money. His real dad will be referred to as Poor Dad, he wasn't poor at the time. In fact, he was making quite a lot of money. But his lack of financial education drowned him in debt. Now, little Robert, being disappointed, went to his best friend, Mike, which Mike's father will be referred to as Rich Dad, who started mentoring Robert and Mike on how to become rich. At this point in time, Rich Dad wasn't really rich yet, but soon he became the richest man in Hawaii. Rich dad told them, if you want to learn to work for money, the school can teach you that and you don't need me for it. But if you want to learn how to have money work for you, then I can teach you that. But to learn how to put money work for you, you first need to know how money works. He started off by telling the kids that the first lesson you need to know is that you must know the difference between an asset and a liability, and you need to buy assets if you want to be rich. This is all you really need to know. It is rule number one. It is the only rule. You see the rich buy assets and the poor and middle class by liabilities and often think they are assets. The primary cause of financial struggle is simply not knowing the difference between an asset and a liability. But little Robert didn't even know what an asset or a liability is.
Luckily for them, rich dad, who didn't even have a high school education, put it in simple words so the kids could understand. He told the kids, an asset is something that puts money in your pocket. A liability is something that takes money out of your pocket. Then he drew a simple diagram for kids and called it cash flow to show how a normal person handles his money. This normal person, right here, earns his income from his job, and his expenses are things like food, clothes, entertainment, transportation, and sure taxes. Unfortunately, he doesn't have any assets, but sure, he does have liabilities that constantly takes money out of his pocket because of things like mortgages, taxes, credit cards, loans, the car, and believe it or not, the house will take money out of your pocket and add to your expense column. Now, let's take a look at how the cash flow pattern really works for Rich. Instead of just focusing on their normal job to earn money as the only source of income, they save money and buy assets. That brings more money to their pockets. Now they have two ways going for them. They are working. And so as their assets. Examples of assets are businesses that don't require your presence, stocks, bonds, mutual funds, income-generating real estates, royalties, and pretty much anything that has value and produces income. Rich people invest in assets and minimize their liabilities so they have income more than expenses, which enables them to keep buying more assets, which produces even more income for them from the asset column. This is exactly why the rich are getting richer. The assets generate more than enough income to cover expenses. With the balance invested in the asset column, the asset column continues to grow and therefore the income grows with it. As mentioned before, poor dad was making quite a lot of money from his job, but his expenses seem to always keep up with his income, never allowing him to invest in assets as a result of his liabilities, such as mortgages and credit card debt grew greater over time and he ended up in debt. You see, both dads worked hard, but how they managed their money made one end up in debt and the other becomes the richest man in Hawaii.
Little Robert was really curious, so he listened very carefully to both dads and what they had to say about money. One said, when it comes to money, play it safe, and don't take risks. The older said, learn how to manage risk. One said I cannot afford that. The other said, How can I afford that? One said, find a job and work for money. The others said, Learn how to put money work for you.
Although both men had tremendous respect for education and learning, they disagreed on what they taught was more important to learn.
You see, poor dad knew how to earn money, but he didn't know anything about money itself and how it works. So he told little Robert if you want to be rich, just work hard and make more money. On the other hand, the rich dad told kids to get a job, and working hard for money is the most stupid way to get rich. He went on telling the story of Robin Hood. This is the guy who takes from the rich and gives to the poor. Inspired by the story of Robin Hood, the tax system then was invented in 1913 to create an equal society. But the problem is that Rich is too smart for this. And in practice, instead of taking from the rich and giving it to the poor, in fact, it has become more like taking from the middle class and giving it to the poor. Rich people are constantly looking for ways to pay fewer taxes, and their main secret is, quite simply, their company. Poor Dad didn't know anything about this. Instead of owning a company, he was working for one. So he was paying almost 40-50% of what he was earning as taxes. In fact, he was getting taxed even before he got his salary. That's why the harder he worked at his job, the more tax he paid to the government because he was getting taxed on his income. Rich Dad, on the other hand, didn't work for any company. He actually owned the company. This would allow him to have a tax-free income, which then he could spent and only pay tax for what is left and not his total income. Needless to say that taxes are the number one expense for most people, and this is how rich people minimize their taxes. Rich Dad even taught kids how to invest what is left on assets so there is nothing left to be taxed.
You see, the financial struggle is often the result of not knowing how money works. No wonder why so many people are struggling financially because money is a subject that they never teach us in school. The result is that people learn to work for money but never learn how to put money work for them.
Robert learned his lessons. He now knew that if he wants to be rich, despite so many people that only focus on their income statement, he should focus on the asset column and not just his income statement while keeping expenses low and reducing liabilities. He also realized that his single most powerful asset is his mind, so he never stopped training his mind and learning new skills, which made him more valuable and as a result, he became rich. What the rich dad taught Robert and Mike are invaluable lessons about money that each and every one of us can use to become financially independent. Speaking of financially independent, you guys would love this summary I made of the richest man in Babylon. Be sure to also check that out and subscribe to the channel for more amazing book summaries in the future.