Rich Dad Poor Dad by Robert Kiyosaki focuses on the importance of financial intelligence and making money work for you (like the rich) instead of working for money (like the poor). It’s titled from Kiyosaki’s two fathers, one who was a school dropout that never finished 8th grade – the rich dad; his best friend’s father, and a highly educated, intelligent dad who earned a Ph.D. and has a job – the poor dad; his birth father. Both dads had contrasting approaches to life and achieving success which kept Kiyosaki pondering for long periods about what each was saying allowing him to ultimately choose a way of thinking for himself, which became more valuable in the long run.
I’ve been procrastinating reading this book for a while but finally managed to sit down and finish it off, mostly I think because of this cold rainy weather. This book provides a different perspective on life and encourages you to think outside of the box – beyond the traditional “study, get a job, play it safe and not take risks”. It has insightful personal finance practices, stresses the importance of financial literacy in today’s society, and is an inspirational life-changing read. The lessons below are my favorite insights I learned from reading this book.
Lesson 1: Don’t say “I can’t afford it.”
Within the book, Kiyosaki mentions that their rich dad forbade him and his best friend to not say “I can’t afford it” and to challenge themselves by asking themselves how they can afford it. This allows your brain to think and search for answers which enables you to exercise your mind. Also, this shows the power of thoughts in one’s life and how changing your words can lead to strengthening your mind and building a dynamic spirit. It’ll change your life for the better.
Lesson 2: The importance of financial literacy and investing in your mind
Throughout the book, Kiyosaki highlights that the lack of financial education is the foundation of a debt-ridden society and the lack of the same within schools fails to develop future generations to meet the fast-changing world of today. Schools don’t teach how to make money work for you but rather teach you to work for money. A set procedure is present for students to follow and deviating from the rules is punished. This discourages creativity and creates better employees instead of employers. (Check out my rant on schools : The Machine – https://musingsofaquietgirl.wordpress.com/2018/07/02/the-machine/#more-19)
He states that “money without financial intelligence is money soon gone” and that “Most people fail to realize that in life, it’s not how much money you make, it’s how much money you keep.” It strongly shows us the importance of knowing how to spend money and what you do after you make it, i.e., your spending habits are more important than how much you make. We can see this in real life with lottery winners who suddenly get rich and then poor again or professional athletes that earn millions a year and then end up homeless or working for minimum wages.
Kiyosaki further goes on to explain that “The only real asset you have is your mind” and to invest in your learning/ education. He believes all individuals would benefit from developing their financial IQ which comprises of having a broad overall knowledge of accounting, investing, the markets, and the law. He also discusses that financial literacy is the only way out of the Rat Race – the vicious cycle of getting up, going to work, and paying bills; over and over again because of the need for more and more money.
Lesson 3: Difference between an asset and a liability
Lesson 3 can seem somewhat simple for an accounting student but what strikes me in Kiyosaki’s definition of an asset and a liability is how simple it is. Simply put, an asset is something that puts money in your pocket. These include stocks, bonds, and income-generating properties. Whereas, a liability is something that takes money out of your pocket which includes cars or houses for personal use.
Lesson 4: Focus on growing your assets not increasing your income
Kiyosaki mentions that rather than focusing on income which is more short-term focus on assets and that they are more important over the long run. The advice he presents is to be open to the idea of investing in income-producing assets and covering your expenses through this cash flow. The balance is to be reinvested into the asset column which allows the asset column to continue growing therefore income it produces grows with it. The book further illustrates how the rich remain rich in this way whereas the poor and middle class buy liabilities thinking they are assets. Another interesting point that was made within the book was using assets to buy luxuries by increasing the income generated from them as opposed to buying them on credit i.e., buying them as liabilities.
Lesson 5: Work to learn not for money
Rich Dad Poor Dad shows that to be financially secure one needs to not work for money but get money to work for them and that jobs are a short-term solution to a long-term problem. The book highlights the use of jobs as learning opportunities as opposed to making money and indicates taking a 2nd job to learn another skill. Kiyosaki states that the ability to sell, communicate and negotiate are crucial skills in today’s world and that it also helps get over the fear of rejection as well. He mentions taking on a long view of life – “Life is much like going to the gym. The most painful part is deciding to go. Once you get past that, it’s easy.”
Lesson 6: Paying for yourself first
This lesson ties in with Parkinson’s Law.
“Work will expand to fill the time allotted for its completion” or if you rephrase this “Demand will expand to fill the available supply”.
Have you ever noticed that when you get your paycheck and if you pay your expenses first and then attempt to keep money aside to save you aren’t left with any? That’s because your spending will expand to match the available amount to spend. This is why paying yourself first is extremely important – even if you are short on money. It allows you to prioritize your long-term financial well-being and the pressure to pay other expenses (when you are short) would act as motivation to make yourself think (Going back to Lesson 1 here – thinking how you can afford it) and the more you think, the stronger your financial skills will become.
Lesson 7: Use your hatred for losing as inspiration to win
My last favorite lesson was that how you respond to/ handle failure is what makes the difference in one’s life, to not be afraid to lose or fail and that failure turns losers into winners. Life is a struggle and we are constantly faced with obstacles of varying difficulties where we might win or lose. What matters is not winning each time (that would be great, but will you be learning anything really?) but how you handle your failures, learn from them and grow to be a better individual. The book also touches on overcoming cynicism. We all have doubts and these sometimes paralyze us but listening to these i.e., the noise is expensive and will keep us poor.
So there you go… Those are my favorite lessons from the book Rich Dad Poor Dad.
Also, this is strictly for entertainment purposes only and shouldn’t be considered financial advice.
Have you guys also read this?
Feel free to share your insights in the comments.
Also, if you haven’t already read this, please do! It’s a great read for anyone interested in personal finances and has many thought-provoking insights within the book.
Thank you!
P.S. Check out this short clip on Investing in Your Financial Literacy…
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