This article is about the key lessons from Rich Dad Poor Dad written by Robert T. Kiyosaki. It’s a best-seller book and has influenced millions of people with the way they think about money. This is a very good personal finance book, and is one that I recommend you read.
My Experience With The Book
You know, I’ve learned so much from this book that it literally changed my life. When I was in my last year in college, my mentor suggested to me that I read this book because this is where he got his lessons that he’s teaching to the class. There was a problem though, because I had no experience of reading these kind of books. It’s a 200+ page book that felt like forever while reading it.
The problem was at that time, I’m lazy at reading books and that I have a hard time keeping my momentum on reading. I was a student that time and I had better things to do. However, I decided to continue on because the book looks interesting. So I started to read my very first book on financial education. After finishing it, I felt no regret reading it and it eventually changed my life.
The Key Lessons from the Book
This book is full of lessons that you can use in your everyday lives. Although some of them are unconventional rules and that which violates the agreed upon norms, you’ll realize that when it comes to financial education, it all makes a lot of sense. Robert Kiyosaki has taken a bold move that eventually got him to where he is right now. I believe that anyone can go on this journey, so I decided to follow the principles of Robert Kiyosaki’s Rich Dad in my everyday life.
Given below are the key insights and lessons that I learned from Kiyosaki’s book. I think these principles are very important if ever you wish to change your financial status quo. Follow these lessons and you will be on your way to financial freedom.
- The Rich Don’t Work for Money
People normally think of rich people as greedy and someone who only works for money in his entire life. The truth is, it’s the other way around. Rich people make money work hard for them. In fact, the majority of the people go to work every day in order to earn money. And when they think that they are not getting enough, they demand for a pay raise and work harder. But, if you think that working harder is the key to becoming rich, then you’re getting it completely wrong.
The point here is that if you’re an employee, you won’t get rich by just having a job for the rest of your life. When you were still in school, your teachers told you that in order to become successful you should “Study hard and get good grades so that you can find a safe, secure job with high pay and great benefits”. However, they didn’t actually teach you how to become rich because the subject of financial education is never taught in schools, which brings us to the next key lesson.
- Learn the Subject of Financial Education
In order to become rich, you need to first learn how to become financially literate by learning the subject of financial education. Rich dad believed in the power of words and how it can affect your life in a huge way, so learning words like assets, liabilities and cash flow help you change the way you think about money. Financial education and literacy is divided into the four fundamental subjects:
- Accounting – is the ability to read numbers, which is very important if you want to master the game of money
- Investing – is the science of “money making money”, which is very important as well if you want to grow your wealth and finances
- Marketing – is the ability to understand your customers and to interact with them by providing their needs, which are mostly emotion-driven
- Law – is the ability to understand legal entities such as corporations in order to take advantage of tax incentives and to gain protection from lawsuits
These are the four key subjects in studying financial education. Although there are other things to learn, these core subjects lay the foundation of your financial literacy and is therefore important to achieving your financial success.
- Know the Difference between an Asset and a Liability
This is big and is perhaps the greatest reason why people never move forward with their finances. Knowing the difference between assets and liabilities are very important and is the key to becoming rich according to Kiyosaki. But first, let me make myself clear on what the definition of an asset and a liability is. Yes, it’s an accounting term, but rich dad defined it in very simple terms.
An asset is anything that puts money into your pocket while a liability is anything that takes away money from your pocket. Assets can be in the form of stocks, bonds, real estate or businesses. Liabilities include home mortgage, credit card bills, car payments, or any other items that incur expenses. Please look at the diagram below to see the representation of assets and liabilities (image taken from the book).
This is the basic diagram that rich dad used to teach Robert and Mike (his bestfriend) when they were kids. He said that in order to become rich, you must focus on building your assets and minimizing your liabilities. The problem with most people is that they buy liabilities that they think are assets, which is the reason why they are struggling financially. This is why Robert Kiyosaki said that “your house is not an asset” if you are constantly paying for your house. But if you rent it out to tenants and you are making a positive cash flow from it, then it is an asset.
- It’s not How Much Money You Make, It’s How Much You Keep
Now that you know the difference between assets and liabilities, I will discuss with you the concept of cash flow. The formula for cash flow is simply “income minus expenses”, which is the money you have left that goes into your pocket. Regardless of what profession you’re in, whether you’re in a low-paying or a high-paying job, the money you’re making doesn’t matter. It’s about how much money you can keep.
You may have a job that earns $10,000 a month, but if you spend $9,999 in expenses, then you have a poor person mentality with only $1 left to save. A person earning $2,000 a month with $1,500 expenses is better off because he has a cash flow of $500, which he can then use to work on his asset column. It is this concept of cash flow that really makes the difference between a poor/middle class person and a rich person. Learn how to save money and create assets so that you can increase your cash flow.
- Mind Your Own Business by Getting Out of the Rat Race
Often, the reason why you are struggling financially is because you are minding other people’s business. You work for the company, your boss, the bank, and the government without first prioritizing yourself above all. Mind your own business because you only have one life to live. You need to get out of this so-called “Rat Race” where you run in an endless loop of income and expenses, not really progressing forward. Your mission is to achieve financial freedom so that you can do whatever it is that you want in life.
So how do you become financially free? The answer is: by acquiring enough passive income to cover your expenses. There are three types of income according to Robert Kiyosaki: ordinary, portfolio, and passive income.
- Ordinary Income – is money you earn from working on a job and therefore has a high tax rate
- Portfolio Income – is earned from paper assets such as stocks, bonds, and mutual funds
- Passive Income – is income that don’t require your presence to earn money, example of which are real estate, royalties, businesses w/ systems, and online businesses!
Most people start at the very first type of income: ordinary or earned income. That is perfectly fine, just do your best to set aside as much money as possible in order to build your assets. What you’ll do next is to use that money and convert it into portfolio or passive income, depending on the type of investment you are comfortable with. If you go for stocks for example, then look for trainings or seminars first before you begin investing your hard-earned money. Investing is not risky, as long as you know what you’re doing.
In order to get out of the Rat Race, Robert Kiyosaki made a simple formula that he uses in order to become financially free: “Passive Income > Expenses”. For example, let’s say you have monthly expenses of $2,500, and because of your investments in real estate, you accrue a total of $3,000 a month cash flow. What it means is that your 3,000 bucks is big enough to cover all your expenses that you don’t have to go to work anymore, therefore you’re financially free.
I’ve learned this concept because I was fortunate enough and had the privilege to play the CASHFLOW board game, which Robert Kiyosaki designed to teach financial education to people through a game. If you’re interested to find out what the game looks like, just do a search on “cashflow board game” to find out what the game is all about.
- Corporation is the Number One Secret of the Rich
When employees get their paycheck, it usually is less than its original amount because of the deductions that the salary is subject to, the #1 deduction being “taxes”. Aside from taxes, it is also subject to Social Security, 401k, Medicare, or whatever it’s called in your country. After which, that’s the only time that you’ll be able to spend your hard-earned money in the things that you want. Overall, it’s highly inefficient and is a big burden to us.
So the point that I want to share with you is that in order to take advantage of the tax benefits of the rich, the secret is in creating corporations. By having a corporation, you are legally allowed to spend your earnings first before you are taxed on the remaining money. That’s a great advantage because as an employee, you are taxed on your income first before you can spend your money. While in a corporation, it’s the other way around. This is perhaps why the richest people in the world often pay less in taxes than their employees. Corporation also serves as your first line of defense against lawsuits. Now you know why you should set up a corporation as well.
- Train Your Mind to See Opportunities
Robert and his bestfriend Mike once worked in a convenience store when they were nine years old and was paid little to no money by rich dad. One day, they saw an opportunity when a pile of comic books was about to be retrieved by the distributor. They requested for the books and set up their very own business at a very young age. After three months, they earned lots of money because of that business.
If you want to get rich, you must be open to seeing opportunities such as these. By asking that question, your mind will open up to all the possibilities. It may well depend upon the situation, but if you make it a habit to see things in a different way, you’ll realize that there are actually lots of ways to earn extra money. Don’t get stuck with your job and try seeking opportunities to earn additional income so that you can use it to create assets.
There are a lot of opportunities to earn money, especially online. Because we are in the Digital Age, it is possible to find opportunities in the online world. Do a Google search and you will see a lot of articles about it. Also, depending on your industry, you can use your profession to your advantage and start a business based on that. So go ahead, and find yourself an opportunity.
- Develop the Habit of Giving
Not only do we have to work on building our asset column, but also learn to give and share what we have. Basically if you want something, the best way to have it is to give it to others. If you want more money, give your money to others through a charity or foundation. If you want to become successful in business, teach others how to run a business. Most likely, what you give to others will definitely return to you. There’s a saying: “A simple act of caring creates an endless ripple that comes back to you”. So be generous and develop the habit of giving.
- Your Mind is Your Most Powerful Asset
Your mind is a giant powerhouse of ideas and resources. Once trained, it will see opportunities that are invisible to an average person. I’ve said a while ago that your focus should be to work on improving your financial literacy. That is true because as you learn more and more about the four key subjects (accounting, investing, marketing, law), your mind will open up to all the possibilities and you will see more and more opportunities as you go along.
So whatever your job is right now, you should focus more on learning and not on the money that you receive. Your learnings will serve as your stepping stone to creating your financial empire especially when combined with financial literacy. You will multiply your income by a huge factor once you invest on your financial education.
This is my most favorite lesson of all and is perhaps the reason why this book changed my life. After reading the book, I became more open-minded and started to read Cashflow Quadrant, Guide to Investing, and other Rich Dad books so that I can learn more about financial education. Eventually, I started picking up books from other authors as well in order to expand my knowledge more and I’m very happy with the result.
Before I finish, let me share with you one powerful tip: “Become a lifelong learner of financial education” You can never learn enough of this subject, and that’s the most exciting part of all. Right ‘til this moment, I’m still working on improving myself and I will never stop reading and learning, simply because it’s fun!
- Start Taking Action Now!
The most important advice of all is to start taking action right now. Now it may sound easy and too obvious, but the truth is: it isn’t. As you start taking action, you will come across a lot of obstacles along the way, most of them are internal. You will face fear, doubt, procrastination and so much more.
After all, when you invest your money, there’s a good chance that you’ll lose it. When you start selling, you will face objections and rejections. When you start a business, you’ll doubt your ability to run the business. And when you fail, the urge to give up will be so strong that you’ll just plain quit.
While all of these may seem real and will definitely hinder you from pursuing your goals and dreams, just remember that in the end, the rewards are awesome and your life will prosper. You need to take the plunge if ever you want to make it in the end. Remember, action always beats inaction. So start taking action now!
My Final Word
Well, that’s it for my Rich Dad Poor Dad review. I know it’s a very long, detailed explanation and that I will not be able to cover everything that’s inside the book. But I think these 10 lessons are the most important of all. Use these lessons in your everyday life and you’ll see the difference that it makes once you start applying it.
Furthermore, if you’re interested in reading the book, you can find it on Amazon and buy the book there. You will discover more about Robert Kiyosaki by reading the book and how his journey began with his rich dad. The book will also go deeper on the key lessons that I’ve just shared with you on this article, as well as find more valuable lessons inside.
So what do you think of the book Rich Dad Poor Dad? Kindly share them in the comments below and let’s start a discussion about this book. Thanks and I’ll see you there!