Rich Dad Poor Dad
 | Rich Dad, Poor Dad Author: Robert Kiyosaki Publisher: Viking (Penguin Group) Date of Publication: 2006 ISBN: 0-670-03457-6 Number of Pages: 496 pages |
The Big Idea
FINANCIAL LITERACY = FINANCIAL INDEPENDENCE
A true tale of two dads one a highly educated professor, the other,
an eighth grade dropout. Educated dad left his family with nothing,
except maybe some unpaid bills. The dropout later became one of
Hawaii's richest men and left his son an empire. One dad would say,
I can't afford it while the other, asked, "How can I afford it?"
Rich dad teaches two boys priceless lessons on money, by making them
learn through experience. The most important lesson of all is How to
Use Your Mind and Time to create personal wealth. Free yourself from
the proverbial "rat race". Learn to spot opportunities, create
solutions and mind your own business. Learn to make money work for
you, and not be its slave.
Rich Dad's Words of Wisdom:
You are what you Think.
A job is a short-term solution to a long-term problem.
A highly paid slave is still a slave.
Why climb the corporate ladder when you can own the ladder?
Good Thinking:
Two roads diverged in a wood, and I
I took the one less traveled by,
And that has made all the difference.
Robert Frost, from "The Road Not Taken"
Overview
There is a Need.
The rationale for teaching people financial literacy comes from the
fact there is no real job security these days. Even after years of
toil, the poor and middle class may find they do not have sufficient
funds for their children's college education, or their own
retirement. Why work for a
corporation, the government, and the bank all your life? Awaken your
financial genius and gain financial independence and freedom!
Lesson 1: The Rich Don't Work For Money
At age 9, Robert Kiyosaki and his best friend Mike asked Mike's
father (Rich Dad) to teach them how to make money. After 3 weeks of
dusting cans in one of Rich Dad's convenience stores at 10 cents a
week, Kiyosaki was ready to quit. Rich Dad pointed out this is
exactly what his employees sounded like. Some people quit a job
because it doesn't pay well. Others see it as an opportunity to
learn something new.
WORK TO LEARN
Next Rich Dad put the two boys to work, this time for nothing. Doing
this forced them to think up a source of income, a business scheme.
The opportunity came to them upon noticing discarded comic books in
the store. The first business plan was hatched. The boys opened a
comic book library and employed Mike's sister at 1$ a week to mind
it. Soon they were earning $9.50 a week without having to physically
run the library, while kids read as much comics as they could in two
hours after school for only a few cents.
Lesson 2: Why Teach Financial Literacy?
They don't teach this at school.
The growing gap between rich and poor is rooted in the antiquated
educational system. The system trains people to be good employees,
and not employers. The obsolete school system also fails to provide
young people with basic financial skills rich people use to grow
their wealth.
Know your options and use this knowledge to build a formidable asset
column. In an age of instant millionaires it really isn't about how
much money you make, it's about how much you keep, and how many
generations you can keep it.
Steps to get out of the proverbial rat race:
1. First, understand the difference between an asset and a
liability.
Assets | Liabilities |
Bonds | Credit Cards |
Notes | |
Intellectual Property |
The poor have day-to-day expenses, the middle class purchase
liabilities that they think are assets (i.e., a home or a car), and
the rich build a solid base of income-generating assets.
The middle class finds itself in a constant state of financial
struggle. Their primary income is wages, as wages increase, so do
their taxes. Expenses increase as wages increase. Hence the phrase
"the rat race". They treat their home as their primary asset instead
of investing in income generating assets.
The rich get richer because they keep acquiring more assets and
investments to generate more income, which far exceeds their
expenses.
Reasons why the home is not an asset but a liability:
1. People work almost all their lives to pay off a home (30-year
loans)
2. Maintenance and utilities expenses.
3. Property tax
4. House values can depreciate.
5. Instead of investing in income-earning assets, your money goes
out to
payments for the house.
Your losses:
1. Time that could have been used to grow value in
other assets.
2. Capital which could have been invested rather
than paying home-related
expenses
3. Education that makes you a Sophisticated
investor
If you want to buy a house, first generate the cash flow by
acquiring
assets, which bring income to pay for it.
Examples of real assets are:
Apartments for rent
Real estate
Businesses that do not require your physical presence. You
hire managers.
Average time of holding on to an asset before selling it for a
higher value:
1 year
Stocks (Startups and small companies are good investments)
Bonds
Mutual funds<
7 years
Real estate
Notes (IOUs)
Royalties on intellectual property
Valuables that produce income or appreciate
In summary, the key steps to getting out of the rat race are the
ff:
Understand the difference between an asset and a liability.
Concentrate your efforts on buying income-earning assets.
Focus on keeping liabilities and expenses at a minimum.
Mind your own business.
Lesson 3: Mind Your Own Business
KEEP YOUR DAY JOB BUT START MINDING YOUR OWN BUSINESS.
Kiyosaki sold photocopiers on commission at Xerox. With his earnings
he purchased real estate. In 3 years' time his real estate income
was far greater than his earnings at Xerox. He then left the company
to mind his own business full time. He knew that in order to get out
of the rat race fast, he needed to work harder, sell more copiers
and mind his own business.
Don't spend all your wages. Build a good portfolio of assets and you
can spend later when these assets bring you greater income.
Lesson 4: The History of Taxes and the Power of Corporations
Income tax has been levied on citizens in England since
1874. In the United States it was introduced in 1913. Since then
what was initially a plan to tax only the rich eventually �trickled
down� to the middle class and the poor. The rich have a secret
weapon to shelter themselves from heavy taxation. It�s called the
Corporation. It isn't a building with the company name and
logo in brass signage out front. A corporation is simply a legal
document in your attorney�s file cabinet duly registered under a
government state agency. Corporations offer great tax advantages and
protection from lawsuits. It's the legal way to protect your wealth,
and the rich have been using it for generations. Do your own
research and find out what tax laws will bring you the best
advantages.
The Golden Rule: PAY YOURSELF FIRST.
Rich dad says paying yourself first forces you to create more
sources of
income to cover your expenses. It's a simple rule that works like
this:
| People who work for corporations: |
Earn | Earn |
Spend | Pay Taxes |
Pay Taxes | Spend |
Key Financial IQ Components:
It helps to take some courses to gain financial literacy;
rich dad stresses
the importance of learning :
Accounting. It pays to know how to read financial
statements. When
acquiring businesses or assets you need to quickly see the
financial
standing of the company you are acquiring. Many grown adults do
not
know how to balance a balance sheet. In the long term, this
knowledge
will pay off for you and your business.Investment Strategy. This skill will sharpen with
experience. Talk to
investors and observe how they play the game. Kiyosaki and Mike
spent many boyhood hours sitting in on Rich Dad's meetings with
brokers, accountants, and attorneys.Market Behavior. Know the laws of Supply and Demand. No
business
owner can do without understanding these basic principles of the
market. Bill Gates saw what people needed. Open your eyes to
opportunities. Look at what sells and who buys.Law Kiyosaki recommends doing everything you can to grow
your
business within legal boundaries. Know your corporate, state,
and
accounting laws.
Lesson 5: The Rich Invent Money
Self-confidence coupled with high financial IQ can certainly earn
more for you than merely saving a little bit every month.
Make good use of your time and find the best deals.
An example: In the early 90�s the Phoenix economy was bad. Homes
once valued at $100,000 sold for $75,000. Kiyosaki shopped at
bankruptcy courts and bought the same houses at only $20,000. He
resold these properties for $60,000 making a cool $40,000 profit.
After six more transactions of the same manner he made a total
$190,000 in profit and it only took 30 hours of work time. Rich Dad
explains there are Two Types of Investors:
Buyers of Packaged Investments.
This is when you call a retail outlet, real estate company,
stockbroker
or financial planner and put your money in ready-made
investments.
It�s a simple, clean way of investing.The Professional Investor
Design your own investment. Assemble a deal and put together
different components of an opportunity. Rich dad encourages this
type.
You need to develop three main skills to be this type of
investor,
namely how to:Identify an opportunity everyone else has missed.
Raise capital
Organize smart people
Identify an opportunity everyone else has missed.
Learn to identify hidden Freebies in business deals. For example:
The real business of McDonald's isn't hamburgers. It's the free real
estate underneath each franchise, on every important intersection,
in cities all over the world that is the real wealth of its owners.
THERE IS ALWAYS RISK. You need to learn how to manage risk and not
avoid it.
Lesson 6: Work to Learn Don't Work for Money
The Author's Odyssey
After college graduation Robert Kiyosaki joined the Marine Corps. He
learned to fly for the love of it. He also learned to lead troops,
an important part of management training. His next move was to join
Xerox where he learned to overcome his fear of rejection. The
thought of knocking on doors and selling copiers terrified him. Soon
he was among the top 5 salespeople at the company. For a couple of
years he was No.1. Having achieved his objective " overcoming
his shyness and fear" he quit and began minding his own business.
Learn skills like PR, marketing, and advertising. Take a second job
if it means learning more.
A Difference in Education
Schools train professionals. Professionals become so specialized
they cannot apply themselves in other fields and need to form unions
to protect their jobs. Remember you can have a profession, say,
learn to be a pilot if you want to learn how to fly, but at the same
time mind your own business. The rich "groom" the next generation by
training the heir in all aspects of running the business. They move
him from department to department so he learns how
each one relates to the other. Specialization is not the key here,
but picking up important lessons from each area and seeing the
business as a whole.
Rich Dad groomed Kiyosaki and Mike in the same manner. Mike would
later take over Rich Dad's empire, which included restaurants,
convenience stores, and a construction company. Kiyosaki created his
own empire with real estate, new products and educational materials.
Five Obstacles to Financial Independence
Fear. Don't play it safe and cling to what you think is
secure. If you don�t
go for it and think big you won't be able to earn big.Cynicism. Don't listen to advice of others who are not doing
what you intend
to do. Listen to your self and those who are doing what you aim
to do.Laziness. Greed is good and fights laziness. Think about the
freedom and
money you'll have and you will put in those extra work hours.
Change your thinking.
Instead of saying "I can't afford it". Ask yourself "How can I
afford it?"
Challenge your mind to create solutions.Bad Habits. Spending habits should turn into saving and
investing habits.Arrogance. Don�t think you know everything there is to know
about money.
Listen to others. Enroll in useful seminars.
Ten Steps to Awaken Your Financial Genius:
Find a reason greater than reality, a big dream. Think of
the freedom,
the lifestyle wherein you control your own time. Think of what
you don't
want, i.e. I don't like being an employee.Use the power of choice, daily. You can choose to watch MTV,
or watch
CNBC. It's how you choose to use your time and energy everyday
that
brings financial success in the long run.Choose your friends carefully. It pays to have friends who
are focused
and achieving their goals. Surround yourself with friends you
can learn
from.Master a formula. Learn a new one, and learn fast.
Pay yourself first. Practice self-discipline by keeping
expenses low.
Tenants can pay for your expenses if you rent out apartments or
mini storage,
for instance. Savings are used for investing and creating more
money, not for paying bills.Pay your broker well. Attorneys, accountants, stockbrokers,
and real
estate brokers will have more incentive to work harder for you.
If they
make more money, it means you make more money as well. 3-7% is a
good incentive.Be an Indian giver. It's the concept behind ROI. (Return on
investment)
Invest and then take the initial money out after a time when the
investment
has earned for you.Buy luxuries last. Let the income from your growing assets
afford you the
new car. Wait for your asset base to grow first. Middle class
people buy
luxuries first, on credit.Find yourself a hero. When you play golf you can imagine you
are Tiger
Woods. When you do business, you can ask yourself, "What would
George Soros have done if he was in my place right now?"Teach and you shall receive. As in money, love, or
friendship. If you give
without expecting anything in return, you receive more.
To-Do List
Stop what you're doing. Take a step back to assess your
situation. Stop doing what is not working and look for a new
option.Look for new ideas.
Take action. Find someone who has done what you want to do.
Take them to lunch. Ask for tips.Take classes and buy tapes.
Make lots of offers. Finding a good business deal is a lot
like dating. You must go to the market and talk to a lot of
people, make offers, counteroffers, negotiate, accept and
reject. Many single people sit at home waiting for the phone to
ring instead of going out and hitting the dating scene.Take a walk through your neighborhood and look for bargain
real estate deals.Buy the pie and cut it into pieces. People buy only what
they can afford so they think small. Think big. This goes for
land and other investments.Learn from history. Colonel Sanders lost everything in his
60's and started from scratch with a fried chicken recipe. Bill
Gates became rich before he was 30.
ACTION ALWAYS BEATS INACTION.
"IF YOU'RE DOING SOMETHING YOU CARE DEEPLY ABOUT AND IF YOU
BELIEVE IN IT, IT'S IMPOSSIBLE TO IMAGINE NOT TRYING TO MAKE IT
GREAT."
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