The Book in Three Sentences
In this book summary of Rich Dad Poor Dad, you’ll learn Robert Kiyosaki’s story of growing up with two dads and what he learned from each of them. The book challenges the fact that you need a high income to be rich. The main idea involves making the money work for you instead of the other way around.
Rich Dad Poor Dad: 20th Anniversary Edition Summary
20 Years… 20/20 Hindsight: It Was 20 Years Ago Today
This book wasn’t successful when it first came out in 1997. In fact, it was self-published because every major publisher turned it down. It eventually sold millions of copies and some of its lessons became predictions, such as “the rich don’t work for money”, “savers are losers”, “your house is not an asset”, and “why the rich pay less in taxes”.
Introduction: Rich Dad Poor Dad
The author had two fathers growing up, one rich and one poor. One was educated and intelligent but was poor. The other never made it past eighth grade but was rich. Both were hard-working, but the poor dad struggled financially. They also gave different pieces of advice, especially about money. The concept of money is taught at home, not in school. Rich dad would often exercise his brain by asking himself how could he afford something out of his price range. Poor dad put his brain to sleep when it came to finances. The book is about the six lessons the author learned as a child.
Chapter One: Lesson One: The Rich Don’t Work for Money
Low and middle-class work for money. The rich make money work for them. The author attended the same elementary school as other rich kids when he was a kid. He and a friend became partners and tried to figure out how to make money. They asked for people’s toothpaste tubes to melt the lead and turn them into nickels. Robert’s poor dad explained to the children that what they were doing was illegal, but encouraged their creativity.
Robert had a best friend called Mike. Mike’s dad offered Robert to work for him so that Robert would learn how to make money. He first told the child to make quick decisions and to try to identify whether to do something or not. Mike’s dad was the rich dad. He owned nine convenience stores with large parking lots. Robert and Mike started working in one of those stores for 10 cents an hour. When Robert was ready to quit, his rich dad told him that teaching doesn’t always involve a lecture. Instead, life simply pushes you around and it’s your choice to learn the lesson or not. This is called learning by experience and is less effective than reading. Only focus on what you can control. Education is important, but formal education (mainly college) brings financial problems.
Lesson #1: The Rich Don’t Work for Money
Fear and greed control people. The fear of not having money motivates people to work hard. Greed makes us think about all the things we could buy with the money we have. Logic should control your brain, not emotions. The excitement of buying something wears off quickly. So first, accept that you’re interested in money. That’s why you’re working an eight-hour-a-day job. To survive in today’s economy, you have to master money. It isn’t enough with investing in the long run. Fear and desire are caused by ignorance. Ignorance about money leads to income inequality. A job is a short-term solution to a long-term problem.
Chapter 2: Lesson 2: Why Teach Financial Literacy?
Money won’t solve your problems. Intelligence solves your problems and makes you money. Life isn’t about how much money you make, it’s about how much money you can keep. To be rich, you need to be financially literate.
Rule #1: you must know the difference between an asset and a liability, and buy assets.
An asset puts money in your pocket while a liability takes money out of your pocket. You can have everything in the world and still be financially illiterate. If you’re intelligent, hire someone more intelligent than you. Assets and liabilities aren’t about words, but numbers. The rich buy assets while the poor have expenses. The middle class buys liabilities they think are assets.
Chapter Three: Lesson 3: Mind Your Own Business
There’s a difference between your profession and your business. Don’t make someone else’s business. Mind your own business and own it.
You should acquire the following assets:
- Businesses that don’t depend on you
- Stocks
- Bonds
- Real State
- Notes
- Royalties from IP
Invest in what you love. When you love something, you take care of it.
Chapter 4: Lesson 4: The History of Taxes and the Power of Corporations
Originally, in both America and Britain, there were some temporary taxes to fund wars but taxes became permanent eventually. The poor and the middle class were made to believe that taxes were created to punish the rich. Instead, taxes made the lower classes suffer. The biggest secret of the rich is corporations. Working for money gives power to your employer. If money works for you, you keep the power and control it.
Your financial IQ is made up of the following areas of expertise:
- Accounting: accounting means reading numbers and understanding what they mean.
- Investing: this is the science of “money making money”.
- Understanding markets: the science of supply and demand.
- The law: what can a corporation do that a person can’t?
Business owners with corporations do things in this order:
- Earn
- Spend
- Pay taxes
Employees who work for corporations do things in this order:
- Earn
- Pay taxes
- Spend
Chapter 5: Lesson 5: The Rich Invest Money
We all have potential, but something holds us back: our lack of self-confidence. We need to be bold. When it comes to money though, most people play it safe. When facing financial problems, most people have one solution: work hard, save, and borrow. This relies on luck. Land was considered wealth hundreds of years ago. Then wealth was in factories. Now wealth is in information. Our mind is our greatest asset, so train it well. Your future can’t depend on the money you save alone.
Investing in “secure” investments is so safe that you don’t make anything in return. The more sophisticated you are, the more opportunities you’ll have. Being intelligent allows you to distinguish between good deals and bad ones. You should develop your asset column knowing that some of those assets will prosper while others won’t. Financial education improves your odds when you risk your money. There’s always risk involved.
There are two types of investors:
- The first type buys packaged investments. They call a stockbroker and invest in something. It’s simple.
- The second type creates investments. You have to put the pieces together to become this type of investor.
The become the second type, you have to:
- Find opportunities that others miss
- Raise money
- Organize smart people
What you know is your greatest wealth. What you don’t is your greatest risk. There’s always risk involved. You have to learn how to manage it rather than avoid it completely.
Chapter Six: Lesson 6: Work to Learn – Don’t Work for Money
The world has many smart, talented, and educated people. Most of them don’t make a lot of money though. But most people need one more skill to achieve great wealth. Working hard isn’t enough. Try to know a little about a lot. Learning is everything in the age of information. The world has too many talented but poor people. The problem isn’t what they know, but what they don’t know.
The management skills needed for success are:
- Management of cash flow
- Management of systems
- Management of people
To receive money, you have to give money. To charity, church, and foundations.
You can be a good student and then become a good teacher. To be rich, you must receive and also give.
Chapter Seven: Overcoming Obstacles
There are five reasons why financially literate people don’t develop asset columns:
- Fear
- Cynicism
- Laziness
- Bad habits
- Arrogance
Overcoming Fear
No one likes losing money, but most rich people have lost money at some point. The problem isn’t fear but how you handle it. Winning usually follows losing. Failure inspires winners but defeats losers. If you want to be rich, you must focus. Don’t put your eggs in too many baskets.
Overcoming Cynicism
Having self-doubt is natural. For an investor, the worst of times is the best of times to make money. Buyer’s remorse affects everyone. Criticism blinds you and a careful analysis opens your eyes.
Overcoming Laziness
People who stay busy often avoid problems they don’t want to face. The most common way of laziness is staying busy. The answer is a little greed. It’s good to want a little more if it forces you to do an extra effort to achieve it. Too much greed can be a problem though.
Overcoming Bad Habits
Pay yourself first and then the rest. This gives you the motivation you need to work harder, to think harder. If you pay yourself last, you feel weaker.
Overcoming Arrogance
Don’t use arrogance to hide your ignorance. Use this as an excuse to educate yourself. Find an expert or read a book on the subject.
Chapter Eight: Getting Started
We’re taught to work for money. We’re never taught how to make money work for us. The author offers a ten-step process to “awaken your financial genius”:
- Find a reason greater than reality: the power of spirit. You need a series of “wants” (being free, living your own lifestyle, wanting more money) and “don’t wants” (don’t be an employee, Don’t want to have a boss, don’t want to lose my time).
- Make daily choices: the power of choice. Being rich is a choice. For a lot of people, it’s also a hassle, so that’s why they don’t do it. You can have no money and still learn. Time is your greatest asset. The second one is learning. Invest in education first. Read business books, attend seminars, and listen to audiobooks. Listening is more important than talking.
- Choosing friends carefully: the power of association. You can learn from all kinds of friends regardless of how much money they make. Don’t go along with the crowd, forge your own path.
- Master a formula and then learn a new one: the power of learning quickly. Don’t follow the only formula you learned at school. Learn a new formula and put it into action. Sometimes it’s not about what you know, but how fast you learn.
- Pay yourself first: the power of self-discipline. Control yourself, then your money. This step is the most difficult to master. The most important management skills needed to start your own business are cash flow, people, and personal time. They are enhanced by self-discipline. Practice what you preach. To pay yourself first: 1) avoid debt, keep expenses low, and don’t buy a nice car or a house. 2) When you’re low on money, let the pressure build without using your savings or investments. Use that pressure as motivation.
- Pay your brokers well: the power of good advice. Pay professionals well. One of the management skills is the management of people.
- Be an Indian giver: the power of getting something for nothing. Play with money you can afford to lose. You might get something for free.
- Use assets to buy luxuries: the power of focus. If you want something, put the money you have in your assets column and wait for it to generate money. Don’t borrow money. Growing assets to pay for something is a lesson for life.
- Choose heroes: the power of myth. A powerful way to learn something is when you’re inspired by someone else.
- Teach and you shall receive: the power of giving. Give what you want first, and it’s come back in spades.
Chapter Nine: Still want more? Here are some to-dos
- Stop doing what you’re doing. Take some time to think about what’s working and what isn’t. Stop doing what isn’t working and try something new.
- Look for new ideas. Get books, study them, and apply their lessons.
- Find someone who has done what you want to do. Ask them for tips and tricks.
- Take classes, read, and attend seminars. Look for classes, they are usually inexpensive.
- Make lots of offers. Make an offer, someone might say yes.
- Jog, walk, or drive certain areas once a month for ten minutes. This is how you find the best real estate investment.
- Shop for bargains in all markets, “profits are made in the buying, not in the selling” Look in the right places.
- Look for people who want to buy first, then look for someone who wants to sell. To get richer, think big. Buy land and cut it into pieces. Sell them separately and make a profit.
- Think big. Small people remain small because they think small.
- Learn from history
- Action always beats inaction
Final Thoughts
The three incomes:
- Ordinary earned: go to school, get good grades, find a job
- Portfolio: have your money work for you
- Passive: have your money work for you
Passive income refers to real estate. A portfolio refers to stocks and bonds. The key to financial freedom is your ability to turn earned income into passive and portfolio income.