WHO IS ERIN MEYER

In this famous personal finance book, successful real estate investor Robert Kiyosaki teaches you why everything you’ve ever learned about managing money and business in school is wrong. Kiyosaki’s book has been a top hit for decades, and this executive summary breaks down just what its financial lessons mean for you.
If you’re like most people, then your school system, and even society, have greatly disappointed you in teaching about money, business, building wealth, and entrepreneurship. These are just things not covered meaningfully in the normal curriculum, and most people are pushed down a corporate path they don’t even want to be on just to pay the bills and be like everyone else.

There’s another way though to beat the rat race and establish your own financial independence, at least according to real estate investor Robert Kiyosaki, who wrote the best-selling book Rich Dad Poor Dad.

 

OVERVIEW

In essence, as the title suggests, this book is about Kiyosaki comparing the two father figures in his life and how they so drastically differed in their views of money. His real father — the poor dad — was poor relative to his best friend’s dad who owned his own business.

Importantly, he learned that the rich make money work for them.

How’s this possible? Rather than spending it on pleasures and luxuries that permanently drain money from their pockets, they work to also accumulate ownership in assets. These are shares in businesses, real estate, or whatever else puts cash in your pockets over time.

On the other hand, everyone else is raised to think about how they can work for money. You’re taught skills that’ll be valuable to an employee like how to write a resume, how to follow orders and instructions etc. all in the pursuit of a stable salary, instead of learning about how to start and run your own business or invest your savings.

It’s not about how much money you earn today, but how much you keep and then direct towards accumulating assets.

Kiyosaki says, “A person can be highly educated, professionally successful, and financially illiterate.”

He explains further that while most are familiar generally with the concept of assets and liabilities from basic accounting, they fail to consider how to apply them to their lives. For those stuck in the rat race, this is partly because they’re likely investing in things they think are assets but are actually liabilities.

His simplified definition argues that assets are things that generate positive cash flow, which means they pay you just for owning them. Liabilities are things that require expenses, so these take cash out of your pocket.

His famous example relates to housing. Many in the middle class see their house as the greatest investment of their lifetime, but what sort of investment is this when you spend thirty years paying down a mortgage and interest, while also shouldering insurance costs, property taxes, maintenance, renovation, heating and air condition, water, electric etc.

In reality, buying a house means taking on a huge financial liability that drains cash from your pocket. This is no way to get rich.

Instead, “the rich focus on their asset columns while everyone else focuses on their income statements.” These assets help them build wealth over time, but most of society is just thinking about expenditures like buying a car, a house, or simply keeping up with the Joneses down the street.

Kiyosaki argues that in many ways, the difference between becoming rich or staying poor lies in your psychology. He says, “Broke is temporary. Poor is eternal.”

This boils down to a fundamental difference in how you perceive your circumstances.

Someone who sees themselves as being broke recognizes that while they’re currently out of money, they do not expect to remain this way indefinitely.

If you consider yourself to be poor though, this is sort of a victim mentality that is self-fulfilling and builds on itself. You’re telling your sub-conscience that you’ll never be rich nor do you deserve to be.

So many people say, ‘Oh, I’m not interested in money.’ Yet they’ll work at a job for eight hours a day. Having a job doesn’t necessarily make you secure though. It provides you with just enough income to survive on or even feel comfortable, but it also makes you quite vulnerable to the whims and decisions of someone else. Your financial future is defined externally rather than on your own accord.

Having more money doesn’t solve your problems either if you don’t know how to manage it. It’ll be wasted away just as soon as it was received. At its core, this book is about taking the initiative to, at a minimum, boost your financial literacy.

Wage earners, that is, most of us working a day job employed by someone else, pay income taxes on their gross earnings which you could also think of as your personal revenue.

But businesses pay taxes in a completely different manner. They get to deduct all of their expenses, depreciation, and other costs from their revenue before having to pay taxes.

The rich place their assets in Limited Liability Corporations, also known a LLCs, which enable them to pay very little in taxes as they deduct all relevant expenses before having to hand anything over to the government.

This is a subtle way in which our tax code encourages us to be adventurous entrepreneurs, as we essentially get penalized through higher taxes for remaining employees our entire lives.

Kiyosaki says that financial struggle comes, then, as a result of working all your life for someone else.

Kiyosaki explains further that when looking for his own investments, he focuses on business opportunities that don’t require his physical presence.

This can be in buying shares of stock, bonds, royalties from music, scripts, or patents, and income-generating real estate. This stands in contrast to buying a home that becomes a liability as you inherit significant expenses for residing there, but instead, buying real estate that you rent out to others to create positive cash flow for yourself.

Of course, we have to live somewhere though. One solution he proposes is investing in duplexes.

You can buy the property, live in one side, and then rent out the other side. With the rent you receive from your tenant, you can use this to pay down the mortgage on the property. So, you’re basically getting paid to live there. This is the type of creative thinking necessary to beat the rat race.

Kiyosaki says that many in the poor and middle class might hear this sort of strategy and think that they can’t afford to take such risks. In reality, this just means that they lack the proper financial foundation to feel comfortable understanding and implementing unconventional wealth-building tactics.

Keep your day job for as long as you have to, but with your savings and extra time, start accumulating financial assets and keep an eye out for the many opportunities around you.

Once you change your perspective on taking financial risks, you’ll realize that chances to make money are all around you.

So put your money to work for you and set yourself free from a life devoted to being someone else’s employee. As Kiyosaki says, “The best thing about money is that it works 24 hours a day and can work for generations.”

To accomplish this though, you must master your financial IQ. This relates to four broad areas of expertise: accounting, investing, understanding markets, and the law.

Fortunately, if you’re a regular listener to our podcasts or read our daily investing newsletter, you should be pretty familiar with many of the concepts in these areas. If you’re not, first things first is to grow your financial knowledge.

Don’t let your self-doubt, particularly surrounding managing money, hold you back. Kiyosaki states, “Simple math and common sense are all you need to do well financially.”