First published in 1997, Rich Dad, Poor Dad was written by Robert Kiyosaki and has sold over 32 million copies globally. A New York Times best seller for over 6 years, versions of the book have been translated into 51 languages and distributed in over 109 countries.
The principles outlined by Kiyosaki may be obvious and straightforward. However, the simple outline for achieving financial independence is often contrary to today’s culture and mindset.
Rich Dad, Poor Dad seeks to change reader’s mindsets on how they handle money. The primary purpose of the book was to outline two schools of thought: how the rich think about money and how the poor and middle-class interact with money.
Once you understand these differences, you can begin thinking differently – just like the rich.
Chapter 1: The Rich Don’t Work for Money
Kiyosaki grew up in Hawaii in a middle-class family.
His father was a highly educated, Ph.D who worked in education. While they weren’t poor, his biological “Poor Dad” could never seem to get ahead. Instead, they lived nearly paycheck-to-paycheck, relying on traditional employment to pay the bills. Over the decades of working, Poor Dad had not managed to accumulate any meaningful assets that produced cash flow and wealth.
By contrast, his best friend Mike’s dad hadn’t even graduated the 8th grade.
However, Mike’s dad had a fundamentally different view on money that Kiyosaki’s biological father. Instead of the traditional route of high school, college, and working for someone else, “Rich Dad” worked hard starting, building, and running businesses.
Over the years, he became a respected businessman in the community, employing numerous people to work on his construction projects and stores.
Rich Dad was “educated” in the traditional sense. However, he possessed an immense “Financial IQ.” He surrounded himself with advisors and partners who were “smarter” than him in certain areas. With his team, he eventually became one of the wealthiest individuals in Hawaii.
Poor Dad, however, was traditionally “book smart” but lacked meaningful Financial IQ.
In the first chapter of Rich Dad, Poor Dad, Kiyosaki introduces what he learned as the key differences in how the rich view money and work.
Traditional view of personal finance
In our current educational system, students graduate from high school (and college) without being taught even basic financial literacy.
Many don’t know how to invest or let alone how to balance a check book. We don’t see the damage that can be done by consumer loans. Often, liabilities and taxes consume most of our paychecks, leaving little for us to leverage for financial independence.
The average person probably doesn’t even know the difference in a real asset or liability.
We enter a never-ending cycle of work, paying bills, sleeping, and repeating. This is called the “Rat Race.” We spend our lives working a job that we don’t enjoy just because we have to pay for our lifestyle expenses.
Because money lessons are taught at home, this means there’s a huge financial literacy gap in our society, producing a cycle of low Financial IQ generations.
Our society says go to school and make good grades so that you can get a job with a good company that has benefits. Work your way up the corporate ladder and eventually you will be financially successful.
Poor Dad had the same view.
He urged Kiyosaki to continue his education so that he could land a good job and be a “company man.” After working for decades, perhaps he could land a role that was financially lucrative and afforded a more lavish lifestyle.
By contrast, Rich Dad’s philosophy differed drastically.
Why work for a good company when you can simply own the business? Instead of working your way up the corporate ladder, simply own the ladder and make your own path.
Sure, owning and building a business will be difficult. However, all good things in life are challenging. Life pushing you around is life teaching you valuable lessons that can make you rich one day.
The poor and middle class work for money; however, the rich have money work for them
Rich Dad believed that every dollar was a valuable employee. Each one of his “employees” worked hard every day building the business and hiring more “employees.” Even when Rich Dad slept, his businesses were creating value for his family.
When money works for you, the wealth building potential is compounded and unlimited.
By contrast, the middle class earns money through traditionally active income. We trade our time and freedom for money and benefits from our employer. Often, this severely limits our upside earning potential. Employers (for the most part) simply want to give you the minimum amount necessary to keep you from quitting.
As an employee, you may not participate in the “upside” from your hard work and activities. Instead, you may be lucky to receive an annual inflation raise or perhaps even a bonus. Either way, the company still profits from your work and captures most of the economic benefit in the relationship.
Further, most Americans simply increase their lifestyle with any raises. Instead of putting the money to work through investments, they purchase new cars, larger homes, or go on vacations.
The rich focus on turning their earned income into passive income as fast as possible by buying assets.
Fear and greed dominate the poor and middle class’s motivations
Kiyosaki states that fear and greed are the two key drivers of why the poor and middle class go to work.
Poor Dad worked in fear of losing his job. After all, he had been laid-off before. Others in their community had lost their jobs during down cycles.
We all fear the unknown. Millions of Americans live paycheck to paycheck, including those making over $150,000. A government shutdown or private sector lay-off causes the poor and middle class to fear being unable to provide for their families.
We live in constant fear of not having “enough.”
Greed is another huge motivator for why the poor and middle class work. In other words, the middle class desires a better life. We want that new car, larger home, new golf clubs, or expensive toy. We work and save for years to buy that house with a white-picket fence.
Ultimately, our desires are huge drivers and are our “whys” for why we labor our whole lives.
Kiyosaki explains that the rich have a different mindset.
Rich Dad did not let his emotions control his thinking. Instead, he treated money as a tool. Rich Dad controlled his earning ability and attitude when it came to money and finances.
He did not react but rather proactively and rationally managed his portfolio of businesses and investments.
Chapter 2: Why Teach Financial Literacy?
One key point Kiyosaki reiterates is how important financial literacy is in today’s society.
However, our current educational system does little to educate students on practical personal finance knowledge. Many highly educated individuals spend decades in school and yet know little about how to manage their own money.
Their education helps them “solve problems” in the real world through their work. For solving more complex problems, society generally compensates the highly educated.
However, this “money without financial intelligence is soon gone.”
It’s not how much money you make; it’s how much money you keep
They key to successful personal financial management is spending less than you earn. With the excess, simply invest in a business, stocks, real estate, or other assets.
As you invest more and more and begin building wealth, continue learning and developing those personal finance muscles.
Learn accounting
Above all, learn accounting.
Understand the difference in an asset and a liability. Assets put money in your pocket. By contrast, liabilities take money out of your wallet.
With your income BUY ASSETS. This is the key difference that separates the rich from the poor.
The rich buy assets. Their stocks appreciate and pay dividends over time. Their real estate appreciates and puts cash in their pocket each month from their tenants’ rent.
The poor and middle class buy liabilities that they think are assets. For instance, they buy cars that do have value. However, each month, depreciation erodes the value until the vehicle is worth $0.
The middle class also view their home as an asset. They work their entire lives for a home they never truly own. Instead, they pay their principle, interest, insurance, property taxes, maintenance and repair costs each year. Further, while homes generally appreciate over time, there is no guarantee the home will go up in value.
Even if the home does appreciate, it may not outpace inflation. If the money had instead been invested, the opportunity cost could be a fortune over their lives.
The middle class and poor work for their companies. They work for the government (by paying taxes), and they work for the bank (by paying the mortgage). Truly, the middle class never experiences financial freedom. With all these payments, they aren’t able to accumulate actual assets that pay THEM every month.
Difference in wealth and net worth
Just like there are differences in how the rich and middle class view assets, there’s a conceptual difference in wealth in net worth.
Your wealth includes the assets that pay you. If you were to lose your income, these assets are available to supplement your income. They provide cash flow and put money in your pocket.
Your net worth includes “idle assets.” While these assets (i.e. your home, vehicles, jewelry) may increase your net worth, they don’t put money in your pocket each month. For instance, if you were to lose your job, your home doesn’t generate cash flow to put food on the table. Instead, you’re stuck paying the mortgage, taxes, and repairs.
Chapter 3: Minding your own business
In today’s world, minding your own business isn’t easy.
We’re inundated with advertising. We see friends or family “living the dream” on social media. Their posts are just a culmination of “insta-worthy” pictures that make us feel like we’re missing out.
To compensate, we end up “keeping up with the Joneses.”
The poor and middle class focus on their income statement. They try to earn their way to financial freedom and wealth.
Focus on building assets
The rich focus on their asset column. They invest and grow their money over time by buying REAL ASSETS.
Real assets include businesses that run without your presence. They include stocks, bonds, and revenue-generating real estate. Real assets also include notes/debt instruments, royalties, and anything else with a ready market.
To buy these real assets, the rich often work day jobs. They use their salaries to begin building the asset column of their balance sheet.
When they want to buy a luxury item, they pay for it with the cash flow from their assets. Instead of trying to earn more, this chapter is dedicated to emphasizing the importance of building up the asset side of your balance sheet.
Eventually, the income from your assets will snowball and allow you to afford the luxuries of life without being a slave to your job.
Chapter 4: The History of Taxes and Power of Corporations
In order to demonstrate a difference in thought between his Rich Dad and Poor Dad, Kiyosaki introduces the difference in their thought on Robin Hood.
As folklore goes, Robin Hood would steal from the rich and give to the poor.
Poor Dad saw Robin Hood as a hero. He represented a “man of the people” who re-distributed wealth from the greedy rich. However, Rich Dad saw Robin Hood as a thief and crook. He took what wasn’t his from those who earned it.
Money is freedom
If you work for money, you give power to your employer. If money works for you, you gain control.
While money alone won’t bring you happiness, it can afford you the ability to pursue ideas and dreams that do make you happy. Having money removes certain limitations – the biggest being the need to work.
Many Americans work a job they hate. We spend thousands of hours making our companies rich, doing work that doesn’t have meaning so we can continue buying “stuff.” Our goal is to climb the “corporate ladder.”
However, what if we re-framed the thought and looked for ways we could “own the ladder?” Then, we would regain control and financial freedom.
While the FIRE Movement occurred long after the original publication of the book, Chapter 4 does stress the importance of financial independence.
Each dollar we earn can be invested in our “asset column.” Each dollar invested acts as a great employee and works hard to produce more employees. Eventually, this allows the boss to “buy a new Porsche.” To gain financial independence, we must improve our Financial IQ.
Here are the 4 areas to improve your Financial IQ:
- Accounting
- Investing
- Understanding Markets
- The Law – both taxation and legal protections
Accounting
Accounting is the language of business.
By mastering accounting, you can understand how your business is performing. You can identify what is driving profitability or what is a drag on your business. This can drastically improve your overall financial position.
To be successful, you must first understand the difference in an asset and a liability. Then, you must understand how the balance sheet impacts the statement of cash flows. Understanding this relationship can keep you on the right track, always buying assets that generate returns.
Investing
As you begin identifying excess (or margin) each month, investing allows you to grow your money over time.
Each dollar invested compounds, creating more wealth. Companies pay cash dividends which can be reinvested or spent to buy more assets. Ultimately, this can create a cash flow machine.
Understanding Markets
For those outside of the business world, understanding markets may not be intuitive.
However, supply and demand are the key drivers in economics. Whether you’re selling products and services or looking for areas to invest, understanding markets through research and study can go a long way in increasing your Financial IQ.
The Law
Understanding the legal ramifications and tax code isn’t just for lawyers and CPAs.
While Kiyosaki stresses the importance of having a good team around you, consider how you can expand your knowledge base.
Understanding the tax law can help you strategize when making business decisions. Finding ways to legally protect yourself can keep an unhappy client from suing and taking away your home!
Chapter 5: The Rich Invent Money
No, Kiyosaki isn’t advocating for setting up a printing press in your basement to start counterfeiting dollars. (Although, he had a similar scheme when he was a child).
Often in the real world, it’s not the smart who get ahead but the bold. If fear is too strong, genius gets suppressed and the idea never comes to fruition.
The difference in Rich Dad and Poor Dad is an obvious example of this. Kiyosaki’s Rich Dad was smart – but not in the “book smart” sense. After all, he never even graduated from 8th grade. However, he boldly took calculated risks, leading to a successful business career.
By contrast, Poor Dad was highly educated. He obtained his Ph.D., spending countless years enhancing his book smarts. However, he never built any serious wealth. He never took risk by investing or starting his own business. Instead, he was content to rely on his stable job for support.
The rich create their own “luck”
Very few of the rich hit the lottery.
Instead, they create their own luck. They develop their own knowledge and skills and surround themselves with a team of specialists to help them analyze decisions. They mitigate risk by understanding the probabilities of certain outcomes.
Their luck is created just like their money.
While there’s a saying “it takes money to make money,” this is only partially true. While money does compound, producing exponential returns, the single most powerful asset we all have is our mind.
With our mind, we have the ability to learn, adapt, and make decisions that will lead to enormous wealth. We must train our mind in the areas that will enhance our Financial IQ (accounting, investing, markets, and law).
Kiyosaki’s two vehicles for financial growth
The author uses two main asset classes to generate wealth.
- Real estate
- Small-cap growth stocks
In Chapter 5, he explains that real estate represents the foundation of his investment portfolio. Physical, cash flowing real estate provides income each month to reinvest. Through leverage, returns are amplified. However, the stability of real estate doesn’t necessarily provide for monumental returns.
Instead, real estate provides reliable appreciation and monthly cash flow, allowing for greater risk to be taken elsewhere.
Kiyosaki also explained that he invests in small-cap growth stocks.
With these more speculative investments, Kiyosaki is able to develop a system of identifying companies with higher return profiles than traditional investments. However, this comes with additional risk. Once his money has been made in small-cap stocks, he shifts the profits into steady real estate investments.
Poor Dad never wanted to assume any risk. There was never an investment opportunity that was “secure” enough. However, the problem with “secure investments” is they are too safe to make any money.
By implementing Kiyosaki’s strategy, he claims that $100,000 in passive income can be made in 5-10 years.
The two types of investors
Kiyosaki groups investors into two groups:
- An investor who buys packaged investments
- An investor who creates their own investment portfolio
Investors who buy pre-packaged investment choices want something “clean and simple.” They want a generic portfolio that produces average returns. They’re content with the simplicity and not worried about customizing their portfolio to fit their current stage of life or future needs.
It’s like someone who buys a computer off the shelf.
By contrast, there are investors who create their own portfolio mix. They look for undervalued assets and only choose the best to be in their portfolio. Their investments may be more “risky,” however, their potential for huge wins (or huge losses) is much higher. Kiyosaki explains these are the “most professional” investors.
These investors are like people who buy specialized computer parts and assemble the hardware themselves.
There are 3 mains skills necessary for Investor #2 to be successful:
- Find opportunities others missed
- Raise money
- Organize smart people
Finding opportunities others missed can be difficult. The stock market is often fairly efficient. Even if an undervalued security is identified, it could take years until the market recognizes its value.
In real estate, the MLS displays properties that are for sale. Both investors and residential homeowners compete for similar properties, drive up prices, and lower overall returns.
However, Kiyosaki explains to be successful, you must see with your mind what others see with their eyes.
Perhaps, the market takes a dive on fear. You can identify undervalued stocks and take advantage of the decline. If you’re searching the MLS for properties, perhaps, you can identify homes where a remodel would substantially increase the value.
Being creative can help you identify opportunities others have missed.
Raising money for making investments may be uncomfortable. The average person goes to the bank for financing (i.e. real estate properties). However, there are other ways to raise money. When you are just getting started, private money lenders (other investors) and wholesaling deals could be a viable option as you begin accumulating money and assets.
Organizing a team of smart people is another key for the investor who wishes to build their own portfolio. Having a real estate agent, tax professional, legal professional, and other trusted business advisors can help you build a successful business.
Always work with or hire people that are smarter than you.
Above all, remember that there is ALWAYS RISK so learn to manage risk rather than avoid it.
Chapter 6: Work to Learn – Don’t work for money
For most Americans, landing a high-paying job is the ultimate goal.
Future doctors spend decades in school, waiting patiently for a return on their investment. For some, they go into fields based only on the “job security” rather than doing something they truly enjoy.
In Chapter 6, Kiyosaki explains that job security meant everything to his highly-educated, Poor Dad. His Rich Dad, however, valued learning. In fact, Rich Dad paid Kiyosaki and his own son nothing to work for him when they were growing up. Instead, he instilled lessons that allowed them to learn business. This was more valuable than any financial reward at the time.
Broaden your knowledge base
After all, “job” is an acronym for “Just Over Broke.”
Employees often work just hard enough to not get fired, and owners pay just enough so that workers don’t quit. Rarely, do workers go above and beyond in their work to learn beyond what their responsibilities entail.
They prefer to “specialize” in a few particular areas. Poor Dad had the same mindset as traditional thought – become an expert in a narrow field.
Kiyosaki had a warning for those who choose to specialize. Certain sectors and jobs eventually become obsolete or less valued over time. For these specialties, consider unionizing. This can provide protection since “re-tooling” in your mid-40s can be quite difficult.
Be a generalist
Rather, Rich Dad suggested to know a little about a lot. Become a generalist that has a variety of perspectives and hire specialists to dig into the details.
For instance, if you’re naturally reserved, consider getting a second job in sales just to learn how to sell. Kiyosaki recommended exploring multi-level marketing. These types of job involve putting yourself out there, taking risks, and being denied. Over time, this builds character and teaches you how to close deals.
After all, selling is the lifeblood of business.
He explains with a story about McDonald’s. A question is posed to the class: Who can cook a better burger than McDonald’s? Virtually everyone raised their hands. If almost everyone in the world can cook a better burger than McDonalds, why are they still in business? He explains they are experts at selling. They have processes and procedures that make up for the average taste of their product.
Whatever second job you undertake may not be fun. However, just like going to the gym, you’ll feel better in the long run.
Taking on a second job can help you learn quickly and expand your knowledge base.
Learn management skills
Unless you went to school for business, understanding management may not be intuitive. However, there are certain areas to focus when building a business.
- Cash flow management
- Management of systems
- People management
Managing cash flow is vital. If you can’t manage your spend on inventory, supplies, and labor while waiting for customers to pay, you could find yourself bankrupt – even when you have a superior product and sales. Understanding cash flow is imperative to successfully operating a business.
Managing systems and processes is another key area. Building processes to follow can help streamline decisions and coordinate business activities for efficiency.
People management is another key area. Humans have different motivations, triggers, and skill sets. Understanding how to get the most from each employee can create value for your enterprise.
Generosity is key
Flexing the generosity muscle in the middle of your pursuit of financial goals may not make sense at first.
However, Kiyosaki explained that Rich Dad gave generously first.
Giving with a generous heart (expecting nothing in return) is an extremely attractive trait. Others are naturally drawn to giving, self-less people. Giving to civic organizations, churches, or other charities is both the responsible thing to do and can help develop connections with certain causes and others.
Plus, charitable giving may serve as motivation and push you to earn more so that you can be more generous.
By contrast, Poor Dad always waited to surplus to be generous. However, he rarely had enough. He always spent first, saved, and gave later. As a result, he never really contributed to causes that benefited society.
Remember, it’s always better to give than receive. The rich are generous with their wealth.
Chapter 7: Overcoming Obstacles
Most of us have some sort of fear when it comes to our money.
The last thing we want to do is put our hard-earned dollars at risk. For most of us, saving even a few hundred dollars a month can be difficult. The thought of losing even a month or two of savings can feel like a huge setback.
This is because the pain of losing money is far greater than the joy of gain.
As we begin accumulating more assets, there’s the potential for even greater loss. However, investing involves risk and long-term holders of stocks or real estate have proven to produce wealth.
The primary difference between the rich and poor is how they manage fear. The rich learn to mitigate risk and control their emotions. The poor let their emotions control their decisions and prefer to keep their money in “risk-free” assets. They hold cash that sits in the bank, earning pennies.
However, hoarding cash will probably never result in financial freedom. Cash loses value every year to inflation. While cash can be productive when used to purchase assets, cash alone doesn’t pay dividends, appreciate, or produce positive cash flow (other than small interest you may earn on your savings).
5 reasons the financially literate may not gain financial independence
Just because you know a lot about personal finance doesn’t mean you have control over your emotions. Taking the steps to invest can be difficult. Even for those who know how to invest and what to invest in, the fear of taking on risk can keep you from compounding your wealth.
There are 5 primary reasons that keep us taking action to achieve financial independence.
- Fear
- Cynicism
- Laziness
- Bad habits
- Arrogance
Fear of investing
Fear is often the most cited reason for not getting started.
We’re all scared of failure. We worry that as soon as we invest, the market will drop. Alternatively, we could be “waiting for a market correction.” When the market dips, we’re gripped by fear of loss, and we miss the rebound.
Kiyosaki explains that the rich “think like a Texan.” Texas is known for their wildcatting oil prospectors that take big risk for big reward. When you win, win big. When you lose, it’s spectacular.
Even in the losses, you’ll learn valuable lessons that can help you win huge next time.
Overcome your fear of investing by shifting your mindset and learning.
Cynicism
Many people never achieve financial independence because they’re constantly worried about what the market will do.
In conjunction with their fear, the middle class constantly questions if markets will continue to bound higher. He compares these people to “Chicken Littles” who constantly believe the “sky is falling.” They never invest out of fear and a belief that stocks and real estate values are too inflated and set to drop.
These doubts keep cynics sidelined.
Laziness
“Why do today what can be done tomorrow?”
Sometimes, laziness doesn’t manifest itself as a couch potato watching television all day. Often, we stay “busy” to avoid doing things we actually need to do. We come up with errands or chores that sidetrack us from what we actually need to focus on doing.
Kiyosaki explains that a little greed is often the cure for laziness. In other words, having that drive for success and bettering yourself can serve as motivation.
Poor Dad would say “I can’t afford it.” His brain shut down any hope of achievement.
By contrast, Rich Dad said, “How can I afford it?” This mindset opened up possibilities and provoked excitement and dreams. He would then go accumulate cash flowing assets to buy what he wanted.
Laziness is another anchor around society’s neck that will keep you from achieving financial independence.
Overcoming bad habits
Most people go through life in the “Rat Race.”
We spend money on “stuff” and accumulate liabilities. To pay for this, we’re forced to go to work and earn money. We wake up and trade our lives and freedom to pay for our lifestyle.
Rarely, do we have anything left over to save and invest to achieve financial independence.
Kiyosaki explained that his Poor Dad would always pay bills on the first of the month. After paying his bills, he never had much leftover.
Pay yourself first
Paying yourself first is the key to escaping the 9-5 grind.
Rich Dad always paid himself on the first of the month. With any extra, he paid his bills. Even in some months, he didn’t have enough to pay himself first. Still, he paid himself first and worked harder to earn more money and pay off his monthly liabilities to collectors or even the IRS. He always managed to pay both himself and his bills.
Paying yourself first can be automated.
If you have a 401(k) or other workplace retirement plan, have 15% of your paycheck automatically invested. Set up automatic contributions on pay day to “sweep” money into other investing accounts.
Paying yourself first is key to ensuring building wealth is your #1 priority.
Overcoming arrogance
Often, the most arrogant people are using this behavior to mask their true colors.
Arrogant people are often the most ignorant people. They just don’t understand and pretend to be “experts” to portray themselves as knowledgeable or successful. However, they never grow and progress because they lack the willingness to admit they need a teacher or mentor.
Arrogant people are not open to being educated and informed.
To obtain financial independence, you must be open to admitting to your own blind-spots. If there’s an area of personal finance you need to sharpen, seek out others who are smarter than yourself.
Perhaps, you are new to real estate investing. Listen to podcasts. Read books. Meet other real estate investors for coffee and begin dipping your toe in the water. If you want to start by investing in stocks, learn everything you can about the market by reading or talking with other investors and experts – even if you must pay a fiduciary expert of financial advisor.
Admitting you don’t know everything can go a long way in achieving the knowledge necessary to be financially independent.
Chapter 8: Getting Started
In the world of stock and real estate investing, opportunities abound.
There is “gold” everywhere. However, most people aren’t trained to see it. We all have a financial genius within us. This financial genius has been suppressed by a society that says “money is the root of all evil.”
In American society, discussing finances is taboo. Often, it’s inconsiderate – much like talking politics or religion.
Because of American’s ignorance and the taboo nature of money, society has failed to teach us that money should work for us. For some reason, our society admires hard work and “earning our stripes.”
However, we don’t learn that there is a way to achieve financial independence and live our best lives. Society tells us to do well in school, study hard in college, get a good job and work hard, and spend. When we’re short of cash, simplify go get a loan – you deserve it!
This methodology is easy to follow.
Anyone can find a job and work hard. Learning how to make money work for YOU is difficult.
10 steps to unlock your financial genius:
Kiyosaki explains there are ten steps to achieve your potential in the world of personal finance.
1. Find a reason greater than reality: The power of spirit
Most of us don’t enjoy our jobs.
We go to work for a boss we dislike, perform work that isn’t meaningful for 8-10 hours, and go home exhausted. We sacrifice our family time and freedom to support our lifestyle.
To unlock your financial genius, first identify what you don’t want in life.
Perhaps, you don’t want to continue working where you are. The pay may be good. However, the work may be soul-draining and leave you feeling empty. Your boss could be a jerk or you may not enjoy having others dictate your future.
Maybe, you live paycheck to paycheck. Each month, you fear not having enough to feed your family. You no longer want to live in this cycle of fear and deprivation.
Financial independence can provide an escape route from the rat race and provide financial security.
Identify what you do want in life.
Financial independence may not necessarily mean sipping cocktails on the beach.
Pursuing financial independence gives you a reason to dream. You may want to own your own business. You may want to spend more time with your family. Even if you want to just work part time, identifying what you want in life can help you achieve financial independence.
2. Make daily choices: The power of choice
For 90% of the population, being rich is just way too much hassle.
The work and discipline necessary to gain wealth is not for the faint of heart. Great wealth requires immense responsibility and discipline.
However, if you do want to unlock your financial genius, invest in education first.
Learn what the wealthy do. Read or learn from wealthy people you are around. Emulate what they did to succeed. Often, the rich have a totally different outlook on life and money.
Be open-minded to what makes the rich different. Perhaps, your own mindset will begin shifting.
Rome wasn’t built in a day. Just like it takes time to build a successful city or business, take a long-term view on wealth.
Get rich schemes rarely succeed. Hitting the lottery is highly unlikely. However, implementing a disciplined approach to investing can go a long way in building long-term wealth.
3. Choose friends carefully: The power of association
Have you ever heard the saying “birds of a feather flock together?”
The people you surround yourself will have an immense impact on your life. If you surround yourself with those who have made decisions that result in wealth, they will encourage you to pursue ventures that help you build wealth. They can provide guidance, suggestions, and even financial support to help you achieve your goals.
However, if you surround yourself with fearful, poor people, you will only hear discouragement. They will question everything that the rich do to become wealthy.
After all, most people do not attain any significant level of wealth. They go with the flow of the crowd. By contrast, the rich are true to themselves. Often, they swim against the tide. That’s what sets them apart and allows them to build wealth.
Don’t time the market
Timing the market can be a futile task.
If you wait in the sideline for a dip, chances are you’ll never actually start. You could justify that you’re waiting for a decline. However, when the decline inevitably comes, you will probably be too fearful to start.
Plus, the market generally rises over time. Even if the market declines, chances are it won’t decline back to the point where you could have originally started investing.
The best time to plant a tree was 20 years ago. The next best time is today. Get started investing today.
4. Master a formula and then learn a new one: Power of learning quickly
Wealthy people have often almost routinal decision-making processes.
They identify what works, look for investments that fit the mold, and then execute. For instance, real estate investors often look for deals adhering to the 1% rule. Stock investors often want companies that have a history of paying increasing dividends. Serial entrepreneurs identify problems within their area of expertise and figure out how to solve them.
For the most part, you won’t build wealth and achieve financial independence via the “traditional formula” of just making money. Sure, if you invest 10%-15% into retirement from age 22 to 65, you’ll be able to retire comfortably.
However, this only secures your “Golden Years.” What about all the life that happens between now and then?
The only way to have an exceptional life is to take a radical approach that challenges societal norms.
5. Pay yourself first: The power of discipline
As previously discussed, paying yourself first is key.
In fact, Kiyosaki says this is the #1 determining factor that separates the rich from the middle class and poor. Paying yourself first is the most difficult step to master.
However, you can make paying yourself friction-less. Simply, automate your savings and investments. When you get paid, pay yourself first by buying assets. When the assets produce cash flow, pay yourself first by reinvesting. Each dollar compounds and produces more dollars.
Eventually, your wealth will snowball.
To pay yourself first you must do the following:
- Avoid debt and keep your expenses low
- Buy assets FIRST
Avoiding consumer debt is key. You can’t build assets if you’re making the bank rich and paying interest. This robs your monthly cash flow for unproductive liabilities.
With your 9-5 paycheck, buy assets that produce income. Before you even pay your bills, identify how much you can reasonably invest on the first of the month. If you have liabilities you must pay at the end of the month, work overtime or pick up a side hustle.
Don’t sell assets to pay for liabilities.
6. Pay your broker well: The power of good advice
Paying professionals well is another distinguishing factor for the rich.
Good advice isn’t cheap. However, this can actually make you multiples of what it costs. If you’re buying real estate, a good broker goes above and beyond to ensure you are buying a good deal. Often, we tip servers 15%-20% when we dine at restaurants. However, we only pay our broker 3%-7%. Not only do good broker help us get the best price, they also provide a wealth of knowledge.
A good lawyer and tax professional ensure you are protected from legal and tax obligations. This can save you thousands of dollars in the long run.
Plus, hiring excellent advisors saves you time. As you build more wealth, your time is better spent looking for the next venture instead of managing your financial records or worrying about paper work.
Just like companies set up a board of directors, have your own panel of experts that you can call on for advice. This allows you to know a little about a lot and have individuals who specialize to cover you blindspots.
7. Be an Indian giver: The power of getting something for nothing
Sophisticated investors look for how they can buy assets for “free.”
Sure, there’s an upfront cost. However, with each investment, you should ask when will I recover my investment? This is called return on investment.
Look for investments that pay you back quickly. This means your original dollars should be able to taken back and invested elsewhere.
Sometimes, these types of investments can be relatively more risky and speculative. Kiyosaki explains that he uses small-cap stocks for quick returns. Then, he invests the gains in more stable, cash-flowing real estate.
When he sells his stock, he takes his original investment off the table. He lets the gains run. Essentially, he get to own the stock for “free.”
They key to financial success is owning assets for free and analyzing ROI.
8. Use assets to buy luxuries: The power of focus
For most Americans, we turn to debt and financing when we find things we want.
We buy new cars and finance them from the bank. For a larger home, we take out a 30-year mortgage.
Instead, Kiyosaki recommends buying assets that produce cash flow. With this cash flow, buy life’s luxuries. In his own life, Kiyosaki wanted a Porsche, so he purchased real estate. With one of his investments, he used the cash flow to buy his dream car.
Alternatively, he could have easily sold the property or even financed the car. However, this would be robbing from his “asset column.” Instead, he paid for what he wanted using cash flow from his asset column.
9. Choose heroes: The power of myth
Heroes in mythology embody what is valued in society.
In today’s society, wealth is an admired characteristic. Find mentors and heroes that have achieved a certain status as the “best” in their given field. Learn what they do and implement similar strategies.
For instance, Kiyosaki admired Donald Trump’s ability to negotiate real estate deals. He learned his thought process and how he negotiated. In his own business, he implemented this strategies. For stocks, Kiyosaki admired Warren Buffett, Peter Lynch, and George Soros. He learned what made these people great in their field.
Today, you can learn about heroes in finance from watching YouTube videos, reading books, or watching biographies. You can learn their methodologies for how they analyzed investments and implement those strategies in your own life.
10. Teach and you will receive: The power of giving
In other chapters, Kiyosaki explained that his Rich Dad was immensely generous.
Rich Dad gave to his church, local charities, and others. By contrast Poor Dad waiting for excess (that never came) to be generous.
Kiyosaki’s local community naturally respected Rich Dad for his generosity. People wanted to work with him and do business with him. He gave both of his time and money.
Kiyosaki explains that you should give what you want. If you want money, be generous. If you want knowledge, teach. When you give first, you will get back in buckets.
Often, the poor are more greedy than the rich. This holds them back from achieving financial independence.
If you want to learn about money, find a way to teach others. In order to be a competent teacher, you must study and know the subject well. If you can’t explain financial concepts in a way that a novice investor understands, chances are you don’t know the subject well enough.
Clearly, this will force you to learn and enhance your own skills.
Chapter 9: Still want more? Here are some to do’s
In his final chapter, Kiyosaki provides some practical steps to achieving financial independence and accomplishing your goal of building wealth.
1. Stop doing what you’re doing
The only way to live an extraordinary life is to think differently.
More than likely, you’ve fallen into bad spending habits or have a cultural view of money and finances. To break these bad money habits, stop doing what you’re accustomed.
Once you’ve given yourself space and stopped your current behaviors, assess where you want to be and what needs to be true to achieve your goals. Chances are, most of your past behaviors did not take you to your goal. Instead, it was a side show, detracting from your dreams.
2. Look for new ideas
It’s okay if you’re financially ignorant. However, it’s not okay for you to stay financially ignorant.
Look for ways to educate yourself. Just like reading Rich Dad, Poor Dad can help you learn to shift your mindset around money, seminars and books can offer a way to expand your knowledge.
Take action to learn something new.
3. Find someone who has done what you want to do
A mentor is one of the best ways to learn how to achieve your goals.
Most successful people are extremely generous with their time. If you show initiative and promise, many successful people would be willing to get coffee or discuss what made them successful over lunch.
Having a mentor can hold you accountable to taking the steps necessary to succeed and provide motivation to achieve your goals.
4. Take classes, read, and attend seminars
Education is key.
Learning and development can give you the confidence to pursue efficient strategies for building up your asset column. There are countless books for beginning investors. Attending seminars can help you learn from the best. Taking online courses can help expand your knowledge base in a cost-effective way.
5. Make lots of offers
For those pursuing financial independence through real estate, Kiyosaki explains the key to success is making lots of offers.
Find a real estate agent you trust. Preferably, the will be investors themselves and can help you find a good deal. When deals arise, never be afraid to write offers that are well below asking. Most people are afraid of offending sellers. However, everyone has a price they are willing to sell. Perhaps, out of a thousand offers, one or two will bite at a great price for you.
When you make all these offers, be sure to include “escape clauses.” These contingencies keep you from being on the hook in the event several offers are accepted.
Ways to identify deals
Identifying “good deals” is one of the key reasons cited for not getting started. However, you can quell this excuse with a few practical behaviors.
Explore the neighborhood
Jog, walk, or drive within areas you would like to buy once per month. As you drive, look for “For Sale” signs. Talk to people in the neighborhood. Perhaps, a neighbor knows someone who is thinking of selling but hasn’t yet listed the property. Even the postal carrier could provide information that could lead to a great deal.
You’re looking for bargains and changes in price that could indicate a motivated seller.
Shop for bargains
When real estate or the stock market goes on sale (a.k.a. declines), don’t be afraid to put money to work.
Consumers will always be poor because they stock up when certain items go “on sale.” However, they rarely take advantage of buying opportunities presented by the market. In fact, many who are invested panic sell at the lows. Only when markets are going higher do they buy real estate and stocks.
Clearly, this is not a good strategy, so always be looking for market dips to buy.
Look in the right places
Kiyosaki explained that he bought a unit in a condominium for $50,000. His neighbor bought a similar unit a few years earlier for $100,000. His neighbor was waiting for the value to appreciate back to where it was when he bought before selling.
However, in real estate, the profit is made at the buy. For this reason, look for profit that you could recognize immediately. Don’t rely on appreciation to make your purchase a good deal.
Look for people who want to buy first. Then, look for someone who wants to sell
Another strategy Kiyosaki mentions involves identifying people who may be interested in buying a particular asset or area. If you identify property that fits their needs, you could wholesale the property after locking it under contract.
Wholesaling allows you to profit the difference in your contract and what the ultimate buyer is willing to pay.
Alternatively, you could buy a property and divide it into pieces. For instance, you could buy a large parcel of land and subdivide or resell a portion at a higer price. Another option would be purchasing a duplex and renting out one side of the building.
Think big
Just like retailers love to provide volume discounts to customers, Kiyosaki asserts that thinking big and doing larger deals provides the best ROI.
Learn from history
History may not always repeat itself. However, it often rhymes.
You can identify the next blockbuster stock by understanding markets and studying today’s giant companies. After all, every multi-billion dollar mega-cap stock was once a small-cap stock.
Final Thoughts
Rich Dad, Poor dad explores the difference in how the rich view money and how poor and middle class interact with money.
There are 3 types of income
- Ordinary income
- Portfolio income
- Passive income
Ordinary income is how the poor and middle class live. This is active income derived from our normal day job.
Portfolio income comes from paper assets. Examples include notes, stocks, dividends, or bonds. An example of passive income includes cash flow from real estate.
The rich use their ordinary income to buy portfolio and passive income. They convert their earned income into the other streams of income as fast as possible. When they want to purchase anything, they use the income from their accumulated assets to live their best life.
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