Rich Dad Poor Dad Book Summary at a Glance:
Rich Dad, Poor Dad by Robert T. Kiyosaki is one of the most important books on personal finance that introduced a new perspective on wealth management.
The author explains key concepts of financial management by comparing and contrasting the financial philosophies of his two dads—the rich dad and the poor dad.
His poor dad was a highly educated, salaried man who believed in hard work, job security, and formal college education.
His rich dad was an entrepreneur who didn’t believe in formal education—he believed in financial literacy. He had a different view on financial management than his poor dad. He believed that the only way to build wealth is to run a business and invest in assets that generate passive income streams.
The book’s most notable and revolutionary concept was Kiyosaki’s explanation of assets versus liabilities. He explained that assets bring in money while liabilities drain money.
Many people think of homes or cars as assets, but they’re liabilities. Investment and rental properties that generate income are the real assets.
Overall, the Rich Dad, Poor Dad book is about getting a financial education and making wise financial decisions to acquire wealth and escape the rat race.
Key Takeaways from Rich Dad Poor Dad by Robert T. Kiyosaki:
This classic has numerous gems, but we’re restricting ourselves to the seven biggest lessons you learn from the book.
- Focus on assets, not liabilities:
The key focus of the book was to teach people to be financially independent and how to build wealth.
Kiyosaki says most people don’t understand the difference between assets and liabilities. He defines them as:
Assets are things that bring in money, such as real estate, stocks, and businesses
Liabilities, on the other hand, drain money from your pocket. These include home or car loans, credit card debt, and more
For this, he takes the example of a house, which most people consider an asset but is a liability. He explains that if you buy a house for yourself and use a mortgage, you only incur expenses and get no income from it, making it a liability.
Only commercial real estate, for which you get a rental income, is an asset. Build assets that bring you income, not liabilities that incur expenses.
- Get a financial education:
The most important lesson from Rich Dad, Poor Dad is that financial literacy is crucial to financial success.
He argues that school education fails in this regard and needs to effectively teach financial literacy, including the basics of financial management and wealth building.
He uses the example of his two dads—rich and poor—and the differences in their financial philosophies to point out why financial education is essential.
His poor dad was well-educated and believed in earning a salary. Though less educated, his rich dad was more financially literate and believed in investing money and running a business to build wealth and become financially independent.
So, as vital as it is to be well-educated, being financially educated is a whole different ball game. Invest in financial education and learn the basics of money management, risk assessment, and other vital aspects to manage your finances better.
- Run your own business:
Another takeaway from Rich Dad, Poor Dad is that having a job and earning a salary will not make you rich; running a business will.
According to Kiyosaki, the rich acquire assets and make the money work for them. They don’t work for others but only for themselves.
Earning passive income from assets is the key to building wealth over time instead of relying on a salary. Rather than working hard to make money for someone else, let others work for you to make you richer.
- Understand the tax code and legal system:
Kiyosaki says that the rich understand and use the tax code to their advantage.
He explains that you pay high taxes when you earn a salary or take loans. Some taxes include income tax, social security tax, and Medicare tax.
But if you run a Corporation, you can write off business expenses and pay less taxes. You can even reinvest the profit generated by a company in the business for expansion and growth. One can also pay out the profits to the owners as dividends, which face lower taxes than those incurred on salaries.
You can keep more of your earnings and minimize your tax liability by running a business.
- Learn to invent money:
This is one of the more controversial lessons taught by Robert T. Kiyosaki, where he says that hard work does not help you earn money; making strategic decisions does.
He discounts the philosophy that working hard and doing a good job will make you wealthy. Instead, he argues that the rich invent money, not earn it. They capitalize on opportunities, take risks, and create multiple passive income streams to acquire wealth.
The lesson?
Don’t work for money. Buy assets that will work to earn you money and deliver infinite returns. Some examples of such assets include
Businesses that don’t require active supervision
Rental properties that provide a passive income
Financial investments that pay dividends over time
- Work to learn, not for money:
Another key takeaway from Rich Dad, Poor Dad is that the rich work to acquire skills, not to earn money.
If you work to earn a paycheck, you will never get out of the rat race and acquire real wealth. However, if you work to develop new skills, you will become more talented and open new earning opportunities for yourself in the long run.
This mindset shift directs people from aspiring for well-paying jobs to becoming entrepreneurs. He also emphasizes the importance of building marketable skills and uses McDonald’s as an example.
When he asked a room full of people, “Who can make a better hamburger than McDonald’s?” almost everyone raised their hands. Yet, McDonald’s is a multi-billion dollar business.
Everyone can make a great hamburger, but turning it into a profitable business is a more valuable skill. So, acquire marketable skills that help you earn money and work to upskill yourself, not to earn a paycheck.
- Take financial risks:
Take risks to become rich. If you follow in the footsteps of everyone else, you will be a part of the crowd. If you want to escape the rat race, you must do something different. The rich try new things and explore various opportunities instead of letting them pass by. If you want to gain massive profits, you must take high risks.
Kiyosaki explains that job security differs from financial security. A secure job provides a false sense of security that could lead to complacency. External factors can always change that, and you may lose your job, no matter how secure you think it is.
However, investing in stocks, bonds, real estate, and other assets that create multiple income streams will make you financially secure. If one income stream is affected, you’ll still have many more.
Does that mean you must take unnecessary risks?
Absolutely not! He emphasizes the importance of taking calculated risks to achieve financial success. You must carefully weigh your options but don’t hesitate to bet on a good opportunity because of limiting beliefs and risk aversion.
The Five Big Ideas:
Here are five big ideas from the book that you should understand and implement to achieve financial success.
- The rich don’t work for money; only the poor do:
The wealthy do not work for money but have their money work for them.
They invest in assets and create multiple passive income streams. Kiyosaki delved into the idea more in his second book ‘The Cashflow Quadrant.’
If you invest in others’ business—via stocks, for instance—you are letting your money work for you to generate more money. You’re not actively working for it, yet you’ll generate income and gather wealth over time.
- Rich people acquire assets, and poor people acquire liabilities:
Wealthy people build wealth by acquiring assets that generate income, such as stocks, bonds, and real estate.
Poor people acquire homes, cars, and other possessions that look like assets but are liabilities because they drain money.
- It doesn’t matter how much money you make but how much you save:
The only money that makes any difference in your life is the money you save. You may earn a lot but pay taxes and spend it on essential expenses, leaving next to nothing with you.
Earning a lot of money doesn’t make you rich, but keeping most of it does. If you want to be wealthy, you need to learn how to maximize your tax savings and keep most of the money you make.
- Financial aptitude is what you do with the money you earn:
Earning money is the first step. To be wealthy, you need the financial aptitude to know what to do with that money.
Investing in financial assets is the best way to use your money and let it work for you. Buy stocks, bonds, rental properties, and other income-generating financial assets.
Financial literacy will help you gain financial intelligence and learn how to have your money earn more money.
- Our single most valuable asset is our mind:
Lastly, if you want to learn anything from the book Rich Dad, Poor Dad, let it be this—your mind is your most valuable asset.
It’s not your material possessions—house, car, etc.—or money or anything else.
If you have a keen mind and train it well to develop a strong financial IQ, you can gather wealth and become rich. It’s your mindset and values that you need to change.
Change how you think about money, including how to earn and manage it, to change your financial status and become wealthy.