Rich Dad Poor Dad by Robert Kiyosaki

Reading Time: 13 minutes

Rich Dad Poor Dad Summary

Rich Dad Poor Dad is the crash-course financial education that you should have learned in school. Robert Kiyosaki tells stories about what he learned from his two dads to deliver valuable lessons for any financial education. You will learn the difference between working for money vs. having your money work for you, why buying a house may not be a good idea, and how to overcome the barriers in your mind that stop you from having the financial life you want.

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Key Takeaways

Lesson 1: The Rich Don’t Work for Money

“The poor and the middle class work for money. The rich have money work for them.”

Life pushes everyone around. Some people figure out how to learn from being pushed around. Other people fight back and blame other people for their problems. The first group succeeds. The second group does not.

Most people have a price because they’re afraid of not having money. So they settle for a deal, work hard, and then get excited about all the things money can buy for them. They stay in that cycle for the rest of their lives, not realizing they may have settled for something less than what they’re worth.

The Rat Race is driven by people who are controlled by fear and greed. Their fear of not having money drives them to get up, go to work, and pay their bills. When they get paid more, their desire drives them to increase their spending and requires them to stay in the cycle of working incessantly. Most people in this cycle believe that money will solve the fear that they feel, but it never does.

Many people with lots of money are more driven by fear than people without money. That’s because they fear losing what they have earned and the social and other consequences of that loss. This fear drives them to continue in the Rat Race long after they have enough money to exit the game.

The first step to avoiding the traps caused by fear and desire is to recognize these two emotions as powerful forces in driving most human behavior. You cannot eliminate these emotions, but you can become less reactive to them. And in doing so, you can stop them from allowing them to have an outsized influence on your decision-making.

You don’t need to be a financial genius to create enormous wealth. But you do need to break free from the desire for a paycheck and the short-term security that comes with it. And once you do, you can start seeing opportunities that will create far more money than you could earn as an employee.

Great quotes:

  • “Life pushes all of us around. Some people give up and others fight. A few learn the lesson and move on. They welcome life pushing them around.”
  • “A job is really a short-term solution to a long-term problem.”
  • “It’s fear that keeps most people working at a job: the fear of not paying the bills, the fear of being fired, the fear of not having enough money, and the fear of starting over. That’s the price of studying to learn a profession or trade, and then working for money. Most people become a slave to money – and then get angry with their boss.”

Lesson 2: Why Teach Financial Literacy

“It’s not how much money you make. It’s how much money you keep.”

Financial literacy is the education you need to learn how to make, grow, and keep your money over time. Without being financially literate, you can end up making a lot of money and still being broke. With it, you can learn smart ways to make money work for you over time.

Formal schooling does not teach financial literacy. The result is that most people leave school with a heavy pile of debt and a weak financial foundation. They chase the American Dream, get into debt, and then look for ways to get-rich-quick to solve their problems.

These efforts are a lot like trying to build a skyscraper on a weak foundation. Instead of the Empire State Building, you end up with a wobbly tour that’s highly vulnerable.

The first rule of finance is to know the difference between assets and liabilities. Assets are things you own that generate income for you. Liabilities, on the other hand, take money from you. Rich people focus on acquiring assets, not liabilities. In other words, they buy assets to make sure that their asset column is hearty.

Despite this, people pour their money into liabilities, like expensive cars and other material items that cost them money. Instead, they should look to acquire more assets over time (e.g., real estate, stocks, bonds, IP, and other things that make you money). When you have enough assets, you don’t have to rely on a salary to earn income.

Many people learn how to work hard for their money, but fail to learn how to make their money work for them. And without that foundation, they’re forever caught in the Rat Race.

For example, many people believe their home is an asset. But it is really a liability. That’s because it takes money out of your pocket with taxes, expenses, any losses in value, and the opportunities you miss by having your money tied up in a home.

Instead of buying a home, it’s better to first buy income-generating assets that will generate enough cash flow to pay for the mortgage payment on your home. Once you have enough assets to cover all of your expenses and more, you can invest the balance into more assets, thus producing more income and giving you the freedom to escape the Rat Race.

One definition of wealth is that of R. Buckminster Fuller: “Wealth is a person’s ability to survive so many number of days forward – or, if I stopped working today, how long could I survive?” The first step to being wealthy is to ensure that the income generated from your assets exceeds your expenses.

Great quotes:

  • “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.”
  • “If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending.”
  • “In 80 percent of most families, the financial story paints a picture of hard work to get ahead. However, this effort is for naught because they spend their lives buying liabilities instead of assets.”

Lesson 3: Mind Your Own Business

“The rich focus on their asset columns while everyone else focuses on their income statements.”

Most people spend their lives working for other people. That can include their employer, the government via taxes, and banks via their mortgages. Most people stay trapped in this cycle of working for other people and making those people rich instead of themselves.

You don’t have to start your own company to break this cycle. In fact, all you have to do is focus on growing your assets, instead of only relying on your income. Many people live paycheck to paycheck and can never free themselves from the Rat Race because they don’t have assets working for them.

Net worth is a bad proxy for how much money you have because often the things that you use to make that calculation aren’t as valuable as you think they are, or if they have gained value, they will trigger taxes on the gain once they’re sold.

When you’re young, the best thing you can do is keep your liabilities low and start using your excess cash flow from your job to build a solid foundation of assets. There are a few different types of common assets:

  • A business that does not require your presence. For example, you own a business that is managed or run by other people. If you have to be there, it’s a job, not a business.
  • Stocks
  • Bonds
  • Income-generating real estate
  • Notes (IOUs)
  • Royalties from intellectual property such as music, scripts, and patents
  • Anything else that has value, produces income or appreciates, and has a ready market

It’s important to focus on acquiring assets that you love. Some people love real estate and startups; other people feel burdened or scared by these types of assets. An important part of your asset acquisition strategy is to invest in things that align with forms of income generation that work for you.

Great quotes:

  • “Once a dollar goes into it, never let it come out. Think of it this way: Once a dollar goes into your asset column, it becomes your employee. The best thing about money is that it works 24 hours a day and can work for generations.”
  • “Financial struggle is often directly the result of people working all their lives for someone else. Many people will simply have nothing at the end of their working days to show for their efforts.”
  • “An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.”

Lesson 4: The History of Taxes and the Power of Corporations

“My rich dad just played the game smart, and he did it through corporations – the biggest secret of the rich.”

While it’s commonly believed that the rich should pay more in taxes than the poor, it’s often the middle class and upper-middle class who pay the most taxes. While taxes were originally levied only on the rich, the need to expand the tax base grew as the government grew and needed to fund itself. That leads to income tax being a larger burden on people at the lower and middle rungs of the socioeconomic ladder.

The primary way that the rich have been able to avoid taxes is through corporations. Corporations benefit from having a lower income tax rate than individuals have, and many of a corporation’s expenses can be paid with pre-tax dollars.

While tax law has tried to find new ways to tax the rich, there are often new loopholes that they exploit. For example, one tax law allows you to delay paying taxes on a piece of real estate that is sold for a capital gain by exchanging it for a more expensive piece of real estate.

So if you continue to trade up your real estate, you don’t have to pay any taxes until you sell. That’s simply one way in which savvy people who understand taxes keep more of their money than people who don’t know the regulations.

That’s why tax advisors who know what they’re doing are often worth the cost. They prevent you from paying more than you need to the government.

The higher your financial IQ, the more you’ll find opportunities to make your money go further. A few key areas of financial IQ include:

  • Accounting: being able to read financial statements and understanding the strengths and weaknesses of a business
  • Investing: Understanding strategies and models for making money
  • Understanding markets: knowing about supply, demand, and market conditions
  • Understanding the law: knowing about tax advantages and protections

The best example of using financial IQ is having a corporation. Instead of paying your expenses after you’ve been taxed on your paycheck, you can pay for expenses with pre-tax dollars, lowering your tax burden and your expense burden by knowing how to use legal entities.

Great quotes:

  • “Every time people try to punish the rich, the rich don’t simply comply. They react. They have the money, power, and intent to change things. They don’t just sit there and voluntarily pay more taxes.”
  • “If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.”
  • “Employees earn and get taxed, and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It’s one of the biggest legal tax loopholes that the rich use.”

Lesson 5: The Rich Invent Money

“Often in the real world, it’s not the smart who get ahead, but the bold.”

Avoiding financial struggle and acquiring financial intelligence requires knowledge, but it also requires the courage to act in the face of uncertainty and to avoid “playing it safe.” Those who are willing to act boldly are the ones who see opportunities and seize them, instead of sitting on the sidelines wondering how things may have played out.

One thing that holds people back with money is holding onto the way that “things used to be.” If you get used to things and don’t find ways to adapt to a fast-changing world, you’ll likely be left behind.

Once you build the habit of acting on opportunities, not only will you learn more, but luck will eventually come in your favor. Even if you learn to play the game and figure out how to play it well, it’s important to know that money is not your most valuable asset. Your mind is the key to financial independence, so it’s important to train and treat your mind well.

The truth is that markets go up and down, and opportunities come and go. The important thing is to be able to spot things as they come, have the skills to evaluate them, and move forward with ideas that have a high probability of success and low downside risk. If you can do that well, you improve your chance of moving beyond the poor and middle class.

With money, you won’t always win. You’ll make losing investments and winning ones. The key is to get better over time and not to beat yourself up over the losses.

There are two types of investors – ones who buy packaged investments from a retail outlet, and ones who create investments. To be the second type of investor, you need three skills:

  • The ability to find opportunities that everyone else missed
  • The ability to raise money
  • The ability to hire and organize people that are smarter than you

Great quotes:

  • “Old ideas are some people’s biggest liability. It is a liability simply because they fail to realize that while that idea or way of doing something was an asset yesterday, yesterday is gone.”
  • “If the opportunity is too complex and I do not understand the investment, I don’t do it. Simple math and common sense are all you need to do well financially.”
  • “It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal and praying.”

Lesson 6: Work to Learn – Don’t Work for Money

“Job security meant everything to my educated dad. Learning meant everything to my rich dad.”

Many people live opportunities and money on the table by specializing too much and failing to learn one more skill. Most people focus simply on working hard, but that’s often not enough. If you’re a great writer and write a great book, you still not be a best-selling author. But if you learn how to sell and become a good marketer as well, you may exponentially increase your chances of having a best-seller. Many people are not willing and excited about learning that one skill that will take them to the next level.

One way to think about a job is that it is a learning opportunity. Making money at a job is great, but if you learn new skills, you start to build a stack of experience that can be valuable over your life. That’s why it may be good to try many different types of jobs while you’re young.

A job in which you have a high rate of learning is far more valuable than a secure job, with good pay and benefits over the short term. It’s often better to learn skills and make a little bit less money.

There are three management skills needed for success:

  1. Management of cash flow
  2. Management of systems
  3. Management of people

The most important specialized skills are sales and marketing. Being able to communicate well via writing, speaking, and negotiating are skills that help you in all areas of life. Many people are held back in the realm of communication because they fear rejection.

Great quotes:

  • Life is much like going to the gym. The most painful part is deciding to go. Once you get past that, it’s easy.”
  • “The world is filled with talented poor people. All too often, they’re poor or struggle financially or earn less than they are capable of, not because of what they know, but because of what they do not know.”
  • “I recommend to young people to seek work for what they will learn, more than what they will earn.”

Lesson 7: Overcoming Obstacles

“The primary difference between a rich person and a poor person is how they manage fear.”

There are 5 core reasons why financially literate people may still not have good cash flow:

  1. Fear
  2. Cynicism
  3. Laziness
  4. Bad habits
  5. Arrogance

Overcoming fear

Everyone has a fear of losing money. It’s how you respond to that fear that differentiates a rich person from a poor person. When you inevitably lose money, the important thing is to learn from the experience and remain in the game. Instead of being down about your failures, learn to be inspired by them. Figure out how you can turn the obstacle into an opportunity down the road. Most people end up playing not to lose when the best strategy is to play to win. You don’t win big with a safe, balanced portfolio.

Overcoming cynicism

Doubt – whether it’s self-doubt or doubts of people in our lives – often stops us from acting. But often the best opportunities are found when everyone is fearful, including you, and you find the courage to act anyway. When you learn to work through self-doubt, you start to see more opportunities and to be less influenced by other cynical people who lead you to bad decisions.

Overcoming laziness

A common form of laziness is staying too busy to take care of things in your life. In this state, you convince yourself that you can’t do something. For example, you may say you “cant afford it.” That may be true, but if you ask “How can I afford it?” instead, you may find solutions to your problem. Asking better questions helps you reframe the problem and see things that you would not otherwise see. And that’s how progress happens.

Overcoming bad habits

Successful people often have good habits. Those good habits often require a sacrifice, but in the long run, it’s worth it if it leads you closer to your goals.

Overcoming arrogance

Staying humble when you don’t know something and avoiding thinking that you’re infallible is a key ingredient to preserving and growing your wealth. It’s easy to lose money when you become overconfident.

Great quotes:

  • “For most people, the reason they don’t win financially is because the pain of losing money is far greater than the joy of being rich.”
  • “Getting out of the Rat Race is technically easy. It doesn’t take much education, but those doubts are cripplers for most people.”
  • “I’ve never met a golfer who has never lost a golf ball. I’ve never met people who have fallen in love who have never had their heart broken. And I’ve never met someone rich who has never lost money.”

Lesson 8: Getting Started

“There is gold everywhere. Most people are not trained to see it.”

Learning how to make money, exit the Rat Race, and become financially successful takes trial and error, but with enough effort, you’ll find your way. Here are 10 steps to get started:

  1. Find a reason greater than reality: the power of spirit. Many people want to be financially free, but they don’t want to put in the work to get there. You need a core motivator to make sure you’re up to the task. One idea is to write the things you don’t want (e.g., I don’t want a job), and to use that list as the motivation for becoming financially free. Then list the things you do want (e.g., to travel anywhere in the world anytime you want). Those emotional reasons can drive you to do the work.
  2. Make daily choices: the power of choice. Every day you make choices that will move you toward where you want to go or away from it. For example, you can choose to think money is evil and avoid learning about it, or you can choose to see money as a tool to create the life you want and learn about. One group will likely be more successful than the other. The best choice is to choose to learn.
  3. Choose friends carefully: the power of association. Your friends can be powerful teachers about what to do and what not to do. It’s important to learn from friends but to make your own judgments and avoid folling the crowd. Good bargains are rarely found when everyone shows up. Don’t try to time the market. Have friends who can help you see opportunities before they’re saturated.
  4. Master a formula and then learn a new one: the power of learning quickly. Most people follow a standard formula – work, earn, pay the bills, buy mutual funds, and go back to work. That’s one formula, but there are many formulas that may work better for you. The ability to learn is your greatest asset.
  5. Pay yourself first: the power of self-discipline. Learn how to have the courage to do what needs to be done, even when it’s difficult.
  6. Pay your brokers well: the power of good advice. Don’t look for discounts on advice. Good advice is priceless and often worth paying for.
  7. Be an Indian giver: the power of getting something for nothing. Find investment opportunities that pay you back quickly.
  8. Use assets to buy luxuries: the power of focus. Buy the stuff you want with income from your assets, instead of trading away your assets for a liability.
  9. Choose heroes: the power of myth. Heroes can inspire you to be more of what you want to be. Choose your heroes wisely.
  10. Teach and you shall receive: the power of giving. Whenever you’re feeling short of something – money, love, friendship, etc. – try giving it first. You will often receive it in return. Being generous with yourself and others pays off in the long run.

Great quotes:

  • “If you’re tired of what you’re doing, or you’re not making enough, it’s simply a case of changing the formula via which you make money.”
  • “The easy road often becomes hard, and the hard road often becomes easy.”
  • “Each of us knows people who are highly educated, or believe they are smart, but their balance sheet paints a different picture.”

Lesson 9: Some To Do’s

Here are some more things you can consider doing:

  • Stop doing what you’re doing. Try taking a break to assess what is working or not working for you.
  • Look for new ideas. Read books, explore the world, and try to find new opportunities.
  • Find someone who has done what you want to do. Get their advice.
  • Learn. Take classes, read, and talk with people.
  • Look for bargains.
  • Think big.
  • Learn from history.
  • Action always beats inaction. When in doubt, act.

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