Book Summary: Rich Dad Poor Dad by Robert T. Kiyosaki

Book Summary: Rich Dad Poor Dad by Robert T. Kiyosaki

Are you looking for a book summary of Rich Dad Poor Dad by Robert T. Kiyosaki? You have come to the right place.

I jotted down a few key insights from Robert T. Kiyosaki’s book after reading it.

You do not have to read the entire book if you don’t have time. This book summary provides an overview of everything you can learn from it.

Let’s get started without further ado.

In this Rich Dad Poor Dad book summary, I’m going to cover the following topics:

What is Rich Dad Poor Dad?

Rich Dad, Poor Dad combines autobiography and personal advice to explain how to become financially independent and wealthy. 

It is the author’s belief that what he teaches in this best-selling New York Times book are things we’re never taught in society, and that the knowledge the upper class passes down to their children is what makes them rich (and stays that way). 

His highly successful career as an investor and early retirement at the age of 47 support his claim.

Who is the Author of Rich Dad Poor Dad?

Investor and entrepreneur Robert Kiyosaki has an estimated net worth of over $80 million. 

His Rich Dad brand has published more than 15 financial self-help books, which have sold more than 26 million copies worldwide.

Who is Rich Dad Poor Dad For?

Rich Dad Poor Dad is not for everyone. If you are the following types of people, you may like the book:

  • Anyone looking to escape the rat race
  • Those who wish to learn how the rich become rich
  • Whoever wonders how to approach investing

Rich Dad Poor Dad Summary: Key Insights

Insight #1: The fear of society’s rejection prevents us from leaving the “rat race” and growing rich

Rat race is a term we all know, but how would we define it if asked?

There is a definition that says, “The never-ending cycle of working for others instead of yourself.” You do all the work, but others – the government, bill collectors, and your boss – reap the rewards.

The rat race is typically talked about as something we’re all involved in. In the meantime, it’s also seen as something we dislike. So why do we continue to race?

Many people’s lives are governed by their fear of society’s disapproval.

Take the mantra “Go to school, study hard, get a good job.” for instance.

We still follow this mantra, despite the fact that it’s outdated advice based on the ideas of our parents’ past. There was a time when you could get a job out of college, work for the same company for decades, and retire with a nice pension. In the present day, this formula no longer guarantees a life free of financial struggles or poverty.

While you can study hard, get into a good college, graduate from a high-paying job and still not see financial growth, because you’re still part of the “rat race.” Your bosses get rich while you don’t.

Despite this, we still follow the above mantra in fear of breaking the expectations ingrained in us from birth. So what happens? Despite avoiding poverty, we are certainly not growing any wealthier.

Insight #2: Fear and greed are often behind irrational decisions made by financially ignorant people

Every person, wealthy or poor, experiences greed and fear in relation to money. You tend to think about all the new things money can buy (greed) when you have money. When you don’t have enough, you worry you will never have enough (fear).

A person who does not know how to handle their finances is particularly prone to allowing these emotions to influence their decisions.

Think of it this way: Let’s say you just received a promotion and a pay raise.

You could invest the extra money into stocks or bonds that will earn you money in the future, or you could treat yourself to a new car or house.

In the case of a financially illiterate person, emotion drives their decisions.

It’s so difficult to invest in stocks or other assets when you are fearful of losing money, even if such investments would make you rich in the long run.

While at the same time, greed may motivate you to spend your increased salary on a better lifestyle, such as buying a larger house, which seems to be a far more rational and secure choice than investing in a company.

Your mortgage and utility bills will also increase because of this upgrade, which will negate the raise.

The fear and greed of the financially ignorant prevent them from accumulating wealth in the long run.

Is there a way to counteract these powerful emotions?

By gaining knowledge about investments, debt, and risk. By doing so, you will be able to make more rational decisions, regardless of greed or fear.

People who are financially ignorant may make irrational decisions out of fear or greed.

Insight #3: We receive no training in financial intelligence, despite its importance for our personal and societal wellbeing

To become wealthy, most people believe that they need to be talented and capable. Yet there are many such people in the world, and they are mostly poor. Rather, they are lacking financial intelligence, a comprehensive understanding of financial subjects like accounting, investing, etc.

Sadly, we’re not raised with this intelligence. We have school systems that train people in a variety of useful subjects, but financial intelligence does not belong to them.

Today, even high schoolers often max out their credit cards as a result of not being taught about saving and investing.

It is a problem not only for young people today but also for many highly educated adults who make poor money decisions.

Political figures are generally regarded as the brightest, most educated members of a society, yet there’s a reason why most nations end up in staggering national debt: governing politicians lack financial intelligence.

The average person can also be horribly unprepared for retirement, as evidenced by the fact they have no retirement plan. U.S. figures show that 50 percent of the workforce has no pensions, and 75 to 80 percent of the rest have ineffective pensions.

Clearly, society has not prepared us well for financial matters, so individuals have to learn about them on their own.

We often require a solid financial education when we seek wealth at a time of great economic change.

Insight #4: Educating yourself about your finances and evaluating them realistically are the cornerstones of financial success

The sooner you start building wealth the better – if you start in your 20s, you’re much more likely to become wealthy than if you start in your 30s.

No matter your age, getting started is as simple as assessing your financial situation, setting your goals, and acquiring the education you need.

Examine your financial situation honestly first. What kind of income can you reasonably expect from your current job, and what kind of expenses can you reasonably handle? It may be that that new Mercedes you’ve been eyeing isn’t within your budget.

You will then be able to set realistic financial goals. In five years, for example, you might say that you would like to own that Mercedes.

Developing your financial intelligence is the next step. Take this opportunity to invest in your greatest asset: your mind.

One way to accomplish this is to change the focus: work on what you learn, and not on what you earn.

Consider a short stint working for a network marketing company if rejection is a concern. You may not get a great salary, but you’ll gain good sales skills and confidence, which will be useful for the rest of your career.

In your spare time, you can also learn more about finance. Take finance classes and seminars, read books on the topic, and make contacts with experts.

It’s likely that you’ll one day become wealthy if you build your financial foundation around these building blocks.

Insight #5: You can only become wealthy by taking risks.

A person who does the same thing over and over again and expects a different result is considered insane. By this logic, if you want to change the state of your finances, you’ll need to begin handling them differently.

Taking risks is likely to be the biggest change you will need to make. To get to where they are, all financially successful people have taken risks, and they have succeeded because they manage instead of fear these risks.

You are taking risks when you put your money in checking and savings accounts at the bank, which are not always balanced and safe.

Don’t play it safe with your money; instead, invest it in stocks or bonds. The risks associated with these accounts are higher, but they have the potential to generate much more wealth, sometimes very quickly (as with stocks).

As an alternative to investing in the stock market, you can invest in real estate or tax lien certificates, both of which can help grow your wealth over the long term. The interest rate on tax lien certificates ranges between 8 and 30 percent.

Risk is higher if the potential for return is high. It is always possible to lose your whole investment when it comes to stocks, for example. Nevertheless, you’re guaranteed to not make any big returns if you don’t take the risk at all.

As you can see, if you want to make more money, then you have to take those bigger risks.

Insight #6: The road to wealth is long, so it is imperative to stay motivated.

The road to wealth is long and arduous. You can easily lose heart when you see your investment plunge in value when you hit a hurdle such as this. You will need to find ways to stay motivated when you face setbacks on your way to achieving your financial goals.

It can be helpful to create a personal list of “wants” and “don’t wants” for motivational purposes.

As an example: “I want to be free of my debt within three years so I don’t end up like my parents.”

Use these lists whenever you need a reminder of why you must persevere in your journey to wealth.

It’s a good idea to spend money on yourself before paying your bills in order to stay motivated.

It may seem counterintuitive, but this will allow you to determine exactly how much extra cash you need each month to satisfy both your objectives: satisfying desires, such as buying that vintage guitar you’ve been eyeing, and satisfying bill collectors.

You don’t need to rack up lots of credit card debt, but you should always “pay” yourself first. The added pressure of paying off your debts afterward will encourage you to find creative ways to meet both of your needs.

Additionally, this method will strengthen your financial self-discipline, a key characteristic of all financially successful people.

Research the life stories of wealthy individuals such as Warren Buffett or Donald Trump to get inspiration. Keeping yourself inspired by reading how people overcame struggles to succeed will help you stay motivated.

If you follow these tips, staying motivated on the road to wealth shouldn’t be a challenge.

Insight #7: Even financially literate people can become poor due to laziness and arrogance

After strengthening your financial intelligence, you may still face personality pitfalls that threaten your money.

You can fall into this pitfalls by being lazy or arrogant, because they are less obvious ways to hurt your career.

It’s common to assume that laziness means sitting around doing nothing, but laziness does not always mean inactivity; it can also mean avoiding tasks that need to be done.

Imagine a businessman who works more than 60 hours a week, for instance. He is not seen as lazy by the outside world. By working so late, he alienates his family. The signs of trouble at home are already evident, but he chooses to ignore them rather than address them. In other words, he is being lazy: he avoids doing what he should, and is likely to suffer the consequences in the form of a costly divorce.

Similarly, arrogance is a weakness that can be devastating. When it comes to financial ruin, it is less about ignorance than about ego; the result of poor financial knowledge combined with an ego that is too proud to admit it.

When investing, arrogance can be a particularly dangerous flaw. Some stock-brokers will feed your arrogance so as to maximize their commissions from selling you more shares. They are dishonest salesmen who boost your ego by advertising the positives of an investment while obscuring the negatives.

Even if you are a financial genius, prevent these personality pitfalls. You’ll have a much better chance of avoiding financial ruin this way.

Insight #8: Invest only in assets that put money in your pocket; and avoid liabilities

In order to make solid investment decisions, you need to understand the difference between assets and liabilities.

Putting it simply, a liability is something that costs you money, while an asset makes you money.

It follows, then, that investing in assets will give you a better chance of becoming wealthy.

An asset is anything with value that generates income, appreciates over time, and can be sold readily; for example, a business, stocks, bonds, mutual funds, income-generating real estate, IOU notes, and royalties from intellectual property.

By investing in assets, your dollars become employees working to generate income for you. You are better off if you commit more “employees.”. Your goal should be to make your income higher than your expenses, then to reinvest that excess income into your assets, employing even more dollars to work for you.

It’s unfortunate that many investors continually confuse certain liabilities with assets.

Houses, for example, are often viewed as assets, but they can actually be a big liability. It’s common for people to work all their lives to pay off a 30-year mortgage and property taxes.

The problem with this is twofold: First, you are guaranteed to have a huge amount of money taken out of your paycheck every month (indicates a liability) for the next 360 months. Second, you could have invested those 360 payments into potentially more lucrative assets, like stocks or real estate.

Knowing the difference between an asset and a liability will allow you to make sound decisions about where to invest your money and what not to do.

Insight #9: It’s your business that makes you wealthy, not your profession

In most cases, people consider their business and profession as one and the same thing. In terms of personal finances, there are a few differences:

If you work 40 hours a week to pay your bills, buy groceries, and cover other living expenses, then you are a professional. In most cases, you are given a specific title such as “restaurant owner” or “salesman.”

On the other hand, your business is what you spend time and money on to grow your assets.

You are unlikely to become wealthy through a profession alone since it only covers your expenses. If you want to achieve wealth, you will need to build a business while maintaining your profession.

An example would be a chef who attended culinary arts school and knows all the tricks of the trade. Although her profession – cooking – allows her to pay rent and feed her family, she isn’t growing rich.

She invests in real estate as a business. She invests all extra money she has each month into income-producing assets – rental apartments and condos.

As an alternative, consider a car salesman who invests his leftover income into stock trading every month.

Both professions earned enough money to live comfortably on a monthly basis. However, by investing extra income in their businesses, they are also growing their assets and achieving financial stability.

You should keep your day job until your business shows sustainable growth, since your profession often funds your business initially.

You begin to earn most of your income from your assets and not your profession when that happens.

The sign of true financial independence, in fact, is this.

Napoleon Hill’s 13 principles of success present a philosophy for achieving success that should be pondered. We will take a look at each of the 13 principles in turn in this Think and Grow Rich summary. These include:

Think and Grow Rich has become a seminal book for entrepreneurs, CEOs, and individual thinkers because it is unique in its philosophy and, at times, touches on the spiritual. You can learn how to control your destiny and master your subconscious by reading this Think and Grow Rich chapter summary. 

Insight #10: Maximize your tax savings by understanding the tax code

Most people don’t bother finding out how to minimize their taxes, but taxes reduce personal wealth. This can be achieved legally in many ways.

To reduce your taxation, you should invest your money through the coverage of a corporation. When you invest through a corporation, you are taxed more leniently than when you invest in your own name.

Corporations are also eligible for other benefits in the United States. A corporation’s debts and liabilities are placed in the corporation’s name rather than the owner’s name, which protects the owner from limited losses on investments that go awry.

Being an employee means earning, paying taxes, and then surviving off of the leftovers. Corporations protect you from taxes, so you earn, invest, and spend as much as you can, then get taxed on what’s left.

Corporations can, therefore, help people become very rich very quickly, as is no surprise.

Educating yourself about the many benefits and loopholes of the tax system can also reduce your tax burden.

In the United States, for example, the IRS does not tax your new property until you sell your existing real estate assets such as a house. This is due to Section 1031 of the Internal Revenue Code.

As a result, your capital gains grow and you don’t have to pay any taxes until later.

If you understand how the “system” in your country works, you can legally reduce the tax you pay.

Rich Dad, Poor Dad Summary: Final Words

Since we are not taught financial intelligence in school, it is up to us as individuals to develop this ability. It is only when we have a strong financial IQ, as well as a firm, ambitious mindset, that we can be rich or financially independent. 

The investment you make in your mind is ultimately what will lead you to financial success, as your mind is your most important asset.

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