Rich Dad Poor Dad

Lessons from Rich Dad Poor Dad, a book by Robert Kiyosaki.

This is one of the beginner books that people buy to learn about Money. Fortunately or unfortunatly i read this book quite late. This book and the subsequent books in this series provide financial information.

When i read the book, at times i felt incredulous. When i searched more about the author, found that my suspicions about author’s claims to be correct as can be seen from links given at the end of this page. This book is generally a part of Amway reading list.

Despite the above negatives, in the chapter titled “Why Teach Financial Literacy?” this book takes an interesting approach to teach the basics of accounting, particularly the concepts of Assets & Liabilities and their relation to CashFlow and Income statement. It uses a simple looking but effective line drawings to illustrate their relationship. The taxation aspects related to a corporation and employees are also worth knowing.

I learnt about double entry accounting in https://www.dwmbeancounter.com/ ↗ before moving my investment accounting to Beancount , a plain text accounting software.

On Investment Management , i’ll rather trust Benjamin Graham, whose advice in The Intelligent Investor is solid. Multiple market cycles have reaffirmed the correctness of Graham’s ideas as compared to the claims and suggestions in this book.

Book Summary

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

The rich do not work for money

The main cause of poverty or financial struggle is fear and ignorance. Fear of not having money and desire(greed) of more money used against oneself is ignorance. Do not give in to your emotions, instead delay your reaction and think. Learn to use your emotions to think, do not think with your emotions.

Job is a short term solution to a long term problem.

Acquire Financial Literacy

Rule No.1: Know the difference between an asset and a liability and buy assets.

Rich acquire assets. Poor and middle class acquire liabilities thinking they are assets. An asset is something that puts money in our pocket. A liability is something that takes money out of our pocket.

Structure of Balance sheet

Balance sheet
Asset
Liabilities

Accounting is not just numbers. Understand what the numbers are telling you. Numbers are like words. It’s not the words that matter, but understand the story that the words are telling you.

Structure of Income statement or Profit & Loss Statement

Income statement
Income
Expense

Wealth is a person’s ability to survive so many days in future…. Or if I stopped working today, how long could I survive?

Mind your business

I am not in the hamburger business. My business is real estate. - Ray Kroc, McDonald founder.

Build or acquire businesses that do not require one’s presence. One owns them, but they are managed or run by other people. If one has to work there, it’s not a business. It becomes Job.

History of Taxes and Power of Corporations

Financial IQ is made up of knowledge from four broad areas of expertise.

Accounting - More money you’re responsible for, the more accuracy is required. Left brain understands financial statements.

Investing - Science of money making. This involves strategies and formula. Right brain or creative side.

Markets - One must understand supply & demand of any market one is interested in. Technical aspects are entirely emotion driven. Fundamentals depend on the economic aspects of investment.

Law - Utilising corporations to wrap around your skills of accounting, investing & markets can aid in explosive growth.

The main advantages of a Corporation is Taxability. Corporations pay for expenses before it pays taxes. Corporation earns, spends for everything it needs, and is taxed only on anything that is left(profit) unlike employees.

CorporationEmployee
EarnEarn
SpendPay Taxes
Pay taxesSpend

For eg: Vacations abroad can be categorised as Board meetings in Hawaii. Car Payments, insurance, repairs are company expenses. Health expenses and Club memberships can also come under company expenses. With corporations, you can control everything, but own nothing. For more information, refer to the book ”Inc and Grow Rich”.

The Rich Invent Money

Learn to take risks. Why? Just to have more options


Land was wealth 300 years ago. Then it was factories and production. Today it’s information. Money is not real. It is what we agree it is. The single most powerful asset we all have is our mind. Don’t think “You can’t do that here. This is against the law.” instead ask yourself “can you show me how to do that?”

Personally I use two main vehicles to achieve financial growth: Real estate and small stocks. I use real estate as my foundation. They provide cash flow at all times and occasional spurts of growth in value. The small stocks are used for fast growth. My overall philosophy is to plant seeds in my asset column. I start small and plant seeds. Some grow and some don’t.

Inside our real estate corporation, we have million dollars worth of property. It is our own REIT. We also own a stock portfolio, surrounded by a corporation, that my wife and I call our personal mutual fund. I love real estate because it’s stable & slow moving. I keep the base solid. If properly managed, it also has a chance of increasing in value.

If you want to be a sophisticated investor, you need 3 main skills in addition to being financially intelligent.

How to fund an opportunity that everyone has missed. You see with your mind, what others miss with their eyes.

How to raise money. Tying it up between seller and buyer. It’s what you know more than what you buy. Investing is not buying. It’s more a case of knowing how to raise capital. There are many ways that do not require a bank.

How to organize smart people. Intelligent people are those who work with or hire a person who is more intelligent than they are. When you need advice, make sure you choose your advisor wisely.

There is always risk. So learn to manage risk instead of avoiding it.

Work to Learn. Do not work for money

The world is filled with smart, talented, educated and gifted people. We meet them everyday. They are one skill away from great wealth. When it comes to money, the only skill most people know is to work hard.

You must know a little about a lot of things. Change from “Job security means everything” to “learning is everything”. Hardest part of running a business is managing people. If you’re not a good leader, you’ll get shot in the back.

The main management skills needed for success in business are

Five main reasons why financially literate people may still not develop abundant asset columns. They are

Fear

Overcoming the fear of losing money. In all my years, I have never met a rich person who has never lost money. But a lot of poor people have never lost a dime …i.e they never invest. People are so afraid of losing that they lose. “Winning means being unafraid to lose. - Fran Tarkenton, NFL player” . I have noticed that winning usually follows losing.

“Everyone wants to go to heaven, but no one wants to die.” - Texan Saying. If you want to learn the attitude of how to handle the risk of losing and failure, go to San Antonio and visit the Alamo. They chose to die instead of surrendering. They lost. Texan’s still shout, “Remember the Alamo” when handling failure. They took a great failure and turned it into a tourist destination that makes them millions. Texans don’t bury their failures. They get inspired by them. They take their failures and turn them into rallying cries. Failure inspires Texans to become winners.

Cynicism

Cynics never win. Unchecked doubt and fear creates a cynic. Cynics criticise and winners analyse.

We all have a chicken little inside each of us. Cynic is really a little chicken. We all behave like little chicken, when fear and doubt cloud our thoughts. Investor Peter Lynch refers to the warnings about “the sky is falling” as “noise” and we all hear it. When you’re in doubt and feeling a little afraid, just do what Col. Sanders did to his chicken Little. He fried it.(i.e KFC)

Laziness

Busy people are often the most lazy. They are often busy with something, yet deep down they know they are avoiding something important. It is Laziness by staying busy.

My mom used to say, “Greedy people are bad people”. Often parents found ways of suppressing our desire with guilt. “I’m sacrificing my life to buy this for you” - causes a guilt trip. There’s nothing wrong with wanting things. It is wrong only if you are lazy and steal from your future by piling up bad debt.

Rich Dad forbade the word, “I can’t afford it” as it shuts down our brain. Instead he required his children to say, “How can I afford it?” It Opened the brain and forced it to think and search for answers. So whenever you find yourself avoiding something you know you should be doing, then the only thing to ask yourself is “what is in it for me?”

Be a little greedy. It’s the best cure for laziness. Too much greed, however as anything in excess can be, is not good. Guilt is worse than Greed. For Guilt robs the body of its soul. Do what you feel in your heart to be right - for you’ll be criticized anyway.

Bad Habits

Our lives are a reflection of our habits more than our education. Lack of personal self-discipline is the No.1 delineating factor between the rich, the poor and the middle class.

I practice the concept “Pay yourself First” as explained in the book “The Richest man in Babylon” by George Claso. I firmly believe in paying my bills on time. I Just pay myself first, before I pay the government, even if I’m short of money. My asset column is far more important than the government.

Motivation - after paying myself, the pressure to pay my taxes and other creditors is so great that it forces me to seek other forms of income. The pressure to pay becomes my motivation.That pressure made me work harder, forced me to think and all in all made me smarter and more active in seeking money. If i had paid myself last, i would have felt no pressure, but i’d be broke. So by paying myself first, I got stronger financially and mentally.

Arrogance

Arrogance is Ego + Ignorance. What I know makes money. What I don’t know loses me money. Every time I’ve been arrogant, I’ve lost money, because at those times, i believe that what i don’t know is not important.

When you know you’re ignorant in a subject, start educating yourself by finding an expert in the field or find a book on the subject. Invest first in education. If you learn something new, you’re then required to make mistakes to fully understand what you’ve learned.

Once I was listening to a tape by Peter Lynch, and he said something I completely disagreed with. Instead of becoming critical and arrogant, I simply pushed rewind and listened to that five minute stretch of tape at least 20 times, possibly more. Suddenly, by keeping my mind open, I understood why he said what he said. It was like magic. I felt like I had a window into the mind of one of the greatest investors of our time.

The net result: I still have the old way I used to think and I have Peter’s way of looking at the same problem or trend, and that is priceless. I often say, “How would Peter Lynch do this, or Donald Trump or Warren Buffet or George Soros?” The only way I can access their vast mental power is to be humble enough to read or listen to what they have to say.

Getting Started

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

God does not need to receive, but humans need to give. Sometimes nothing comes back. On closer inspection and soul searching, I was often giving to receive in those instances, instead of giving to give.

Take Action.

Source: https://www.richdad.com/resources/rich-dad-financial-education-blog ↗

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© Prabu Anand K 2020-2026