5 Key Lessons from Rich Dad Poor Dad by Robert Kiyosaki

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Rich Dad Poor Dad: Book Summary

Rich Dad Poor Dad by Robert Kiyosaki teaches us we either work for the rest of our lives chasing paychecks, or building assets that make money while we sleep.

Rich Dad Poor Dad by Robert Kiyosaki is one of the most well known self development books in print. A lot of people know it. But, what actually are the lessons that Kiyosaki teaches in this book?

I first read RDPD when I was starting out on the journey of becoming an entrepreneur, well over 20 years now. And, of all the many books that I have read in that time, this book has been among the most influential on my own life.

They key to wealth is your ability to make money while you sleep.

The key lesson that Kiyosaki teaches is the difference in the world views of the two Dads and of Financial IQ. His real, Poor Dad, was a successful university lecturer. He had a stable job for life with benefits. He was educated with impressive qualifications. He sought stability and comfort, never taking risks. Yet, he spent his life bouncing from paycheck to paycheck. He was never able to call himself “financially free”.

The system doesn’t teach us about money. Sure enough, they are happy to lend money and give us credit cards but how many people actually know what they’re paying on that borrowed money? The reason why rich families stay rich isn’t so much the transfer of wealth or opportunity to successive generations but what the parents teach their kids about money. Schools don’t teach us about money.

Rich Dad Poor Dad is the missing lesson in Financial IQ.

If you want to get more out of the themes, ideas and lessons from Rich Dad Poor Dad, I recommend taking my premium Rich Dad course here.

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Robert Kiyosaki Rich Dad Poor Dad Quote

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In 1973, he returned from service as a Marine Corps pilot and enrolled in a $385 weekend course on real estate investing. “It cost me $385, and I’ve made millions from it,” said Robert Kiyosaki in an interview for MarketWatch.

#1 The Importance of Financial IQ

Everybody except the most financially literate are getting slammed.

Research has shown pre-tax income for the bottom 50% of earners in the U.S. has dropped since the 1980’s. And a full 36% of income growth between 1980 and 2014 went to the top 1% of earners.

This is Financial Education, and it’s what Rich Dad Poor Dad is all about.

RDPD is an apocraphyl autobiography of Robert Kiyosaki growing up in Hawaii under the guidance of his Rich Dad, who was actually the dad of his friend Mike, and his Poor Dad, his real biological father.

The key lesson that Kiyosaki teaches is the difference in the world views of the two Dads. His real, Poor Dad, was a successful university lecturer. He had a stable job for life with benefits. He was educated with impressive qualifications. He sought stability and comfort, never taking risks. Yet, he spent his life bouncing from paycheck to paycheck. He was never able to call himself “financially free”.

Mike’s father, or Rich Dad, was different. He was an entrepreneur. Rich Dad took risks with his money, invested in real estate and owned businesses. Despite having few official qualifications or little in the way of formal education, Rich Dad was wealthy and financially independent.

The reason why rich families stay rich isn’t so much the transfer of wealth or opportunity to successive generations but what the parents teach their kids about money.

Schools don’t teach us about money. The system doesn’t teach us about money. Sure enough, they are happy to lend money and give us credit cards but how many people actually know what they’re paying on that borrowed money?

The system actually benefits from us having low Financial IQ.

richdadpoordad4 5 Key Lessons from Rich Dad Poor Dad by Robert Kiyosaki lifestyle entrepreneur grahamdbrown

Consider the example I pointed out in Tony Robbins’ Unshakeable book recently that 72% of people thought they were paying no charges on their retirement fund, when the average person was actually paying $277,000 in fees over its lifetime! Sure, somebody is benefitting here, and it’s not the average person.

Consider also that the average person, as taught by Poor Dad, believes all debt is bad. Yet, Rich Dad will teach you that there is a big difference between good debt and bad debt. Once you understand this principle, you have the means to create wealth. Good debt allows you to buy assets that produce income for you. Good debt is actually paid back by someone else (as in the case of buying a real estate property and renting it out to a tenant). If the numbers stack, this is good debt and is a long term wealth generation vehicle.

Most Poor Dads will baulk at the idea: too risky, too unjust, too etc… They’ll point out that real estate values go up and down etc, yet they will be working for the rest of their lives to pay their bills. And when they retire, Poor Dads will also be the first to complain about an underperfoming pension fund.

#2 The Power of Leverage

A Spanish village high on the plains has run out of water.

The elders gather the men and tell them that if they do not solve the water problem, the infirm will die, the young will flee to the big cities and the village will perish.

Two men step forward to the challenge and volunteer a solution. The elders gather all the gold in the village and divide it equally between the two men. They wish them good luck and the men disappear.

The next day, the first man wakes early in the morning and uses the gold to buy picks and shovels, recruit some outside labor. They go about digging a deeper well than before by going lower into the water table down the hill. The work is backbreaking in the hot Spanish sun and the men are very tired from both digging and lugging huge buckets of water up the hill to the village.

The elders are concerned because they believe the second man has run off with their money to the big city. They are concerned because soon the first man is running out of money to keep the digging going and they could have used the other half to extend the project.

Soon the diggers run out of money and there is no more gold to pay the bucket carriers. The village runs out of water.

A few days later, the thirsty villagers awake to a strange rumbling sound outside the village.

They exit their houses to see a small convoy of trucks and machines rolling up the hill.

A digger, a cement mixer and at the helm, the second man who disappeared days ago.

The convoy gets to work, building a cement pipeline that carries the water across the valley to the village. When they complete the pipeline, the convoy decamps and leaves the village leaving them with a never-ending supply of water.

The parable of the Spanish village tells us that we have a choice – build pipelines or carry buckets.

Kiyosaki’s own story with his two “Dads” reflects this choice.

On the one hand you can work hard at school, get good grades, get a good job and work your way up the ladder until you retire. You’ll only make as much money as hours you have in the day. Or, you can go out and create your own opportunities by starting your own business. Through concepts like “leverage” you can build and own assets, make money while you sleep, regardless of hours in the day.

The key difference in world view is how we think about money.

The traditional middle class view of money, as embodied in Poor Dad, is that money comes from your salary. You should try to save money. Your biggest “investment” is in your own home.

By contrast, Rich Dad’s world view says salaries and your own home aren’t long term money generators. Rich Dad is focused on building and owning assets. Assets being things that produce income. That’s why your own home isn’t an investment – it doesn’t produce you income.

It’s a theme detailed in Rich Dad Poor Dad by Robert Kiyosaki. Here, we have a choice. To become build pipelines (as an “I” investor or “S” self-employed entrepreneur) or carry buckets (as a “E” – employed salaried worker).

Rich Dad Poor Dad Quote

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10 Robert Kiyosaki Quotes

    • “In the real world, the smartest people are people who make mistakes and learn. In school, the smartest people don’t make mistakes.”
    • “The most successful people in life are the ones who ask questions. They’re always learning. They’re always growing. They’re always pushing.”
    • “It’s easier to stand on the sidelines, criticize, and say why you shouldn’t do something. The sidelines are crowded. Get in the game.”
    • “The trouble with school is they give you the answer, then they give you the exam. That’s not life.”
    • “Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.”
    • “Often, the more money you make the more money you spend; that’s why more money doesn’t make you rich – assets make you rich.”
    • “The more a person seeks security, the more that person gives up control over his life.”
    • “The only difference between a rich person and poor person is how they use their time”

“The moment you make passive income and portfolio income a part of your life, your life will change. Those words will become flesh.”

  • “If you realize that you’re the problem, then you can change yourself, learn something and grow wiser. Don’t blame other people for your problems.”

 

#3 The Difference Between Rich and Middle Class

To build wealth you need to control your assets well and avoid the trappings of a middle class existence. Sure, a big house and a big car may offer the illusion of wealth, especially in the minds of your neighbors but winning the game of wealth creation requires keeping the ego in check.

I first read RDPD when I was starting out on the journey of becoming an entrepreneur, well over 20 years now. And, of all the many books that I have read in that time, this book has been among the most influential on my own life.

RDPD is an apocraphyl autobiography of Robert Kiyosaki growing up in Hawaii under the guidance of his Rich Dad, who was actually the dad of his friend Mike, and his Poor Dad, his real biological father.

The key lesson that Kiyosaki teaches is the difference in the world views of the two Dads. His real, Poor Dad, was a successful university lecturer. He had a stable job for life with benefits. He was educated with impressive qualifications. He sought stability and comfort, never taking risks. Yet, he spent his life bouncing from paycheck to paycheck. He was never able to call himself “financially free”.

Mike’s father, or Rich Dad, was different. He was an entrepreneur. Rich Dad took risks with his money, invested in real estate and owned businesses. Despite having few official qualifications or little in the way of formal education, Rich Dad was wealthy and financially independent.

Kiyosaki’s story reflects the two lifestyle options available to us: carry buckets or build pipelines.

On the one hand you can work hard at school, get good grades, get a good job and work your way up the ladder until you retire. You’ll only make as much money as hours you have in the day. Or, you can go out and create your own opportunities by starting your own business. Through concepts like “leverage” you can build and own assets, make money while you sleep, regardless of hours in the day.

The key difference in world view is how we think about money and how we prioritise how we use that money.

richdadpoordad2 5 Key Lessons from Rich Dad Poor Dad by Robert Kiyosaki lifestyle entrepreneur grahamdbrown

The traditional middle class view of money, as embodied in Poor Dad, is that money comes from your salary. You should try to save money. Your biggest “investment” is in your own home.

By contrast, Rich Dad’s world view says salaries and your own home aren’t long term money generators. Rich Dad is focused on building and owning assets. Assets being things that produce income. That’s why your own home isn’t an investment – it doesn’t produce you income.

#4 Buy Assets that Go Up in Value, Rent Assets that Go Down

Hear about the real estate millionaire who rents the place he lives?

Yes that’s me.

Not what you’re expecting?

Why would somebody with a sizeable property portfolio resort to renting?

In his book, Rich Dad Poor Dad, author Robert Kiyosaki tells us that the difference between the rich and the middle classes isn’t the amount of money they have, but their attitudes towards ownership.

The middle classes want to own everything: they want to own a bigger house, bigger car, bigger whatever.

They want it all because they’ve seen the ad on TV.

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The rich, however, want to own as little as possible. For them, the game is about control. It’s much better to control an asset than to own it. It’s tough. You have to keep your ego in check. Your ego wants you to go out and buy all the outward signs of wealth to impress others, but if you want to create wealth, you might have to accept (on the outside at least) you look just like everyone else.

Robert Kiyosaki Quote

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#5 Beware the Endowment Effect

This is the same reason I don’t own a car.

If possible, I rent.

Where not possible, my wife owns the car in her name and we choose as cheap and functional a car as possible.

Believe me, the best car I ever drove was a dusty, beat-up old hatchback I used to hire from an agency when I lived in the Canary Islands. It was caked in dust and sand blown in from the Sahara desert. I think in the 18 months I drove it I changed the oil once. My wife wanted to wash it one day because she couldn’t remember what color it used to be. I told her I liked it as it was.

And I’m a guy who’s owned luxury cars. It wasn’t a good relationship at all. Once you’re done with impressing people you don’t know and don’t care about, these negative assets are only a black hole that sucks up your cashflow and destroys wealth creation.

Here’s why.

Partly because of my location independent life, living and traveling in 4 continents in the last 5 years. But, mostly because of what economists call “The Endowment Effect”.

The Endowment Effect explains how the fear of loss can lead us to behave in strange ways.

There was once an experiment by Nobel-prize winning economists Daniel Kahnemann where a subject group is divided into two. One half of the group receives a coffee mug. The other nothing. The coffee mug owners are then asked how much they are willing to sell that mug for. The non-owners are asked how much they are willing to buy it for.

There’s a big disparity in perceived value.

Owners said their mug was worth around $5.50-$6.00

Non-owners said they would buy it for around $2.50-$2.70 (Half the price owners wanted to sell for).

I’ve seen this myself as a real estate property investor.

Owners consistently value their property at 10% more than their neighbor’s even though the houses are the same style, same condition. The reasons they give are logical (extended property, better condition etc), but the underlying driver is emotional (fear of loss).

Of course, home owners (like the coffee mug owners) are wrong in the vast majority of cases. They place too much value on what they own.

Which brings me to hiring cars.

Why would I do it if I could afford to buy a car?

For the same reason billionaire John-Paul Getty famously said, “buy assets that go up in value, rent assets that go down.” This is a robust strategy for long term wealth creation.

A new car is the worst “investment” you can make. Unless it’s a collector’s item, the value almost halves as soon as you drive it off the dealer’s forecourt.

If the price is right, a hire car with the right cover won’t lose you money. You don’t fear loss. You can be rough with it. That’s freedom. Freedom from worrying about some idiot dinging your valuable car in the parking lot.

As the old saying goes, the best off-road vehicle is a hire car.

How to Make Money While You Sleep with an Investment Business

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Based on advice from the bestseller Rid Dad Poor Dad by Robert Kiyosaki

Rich Dad Poor Dad ranks as the longest-running bestseller on all four of the lists that report to Publisher's Weekly - The New York Times, Business Week, The Wall Street Journal and USA Today - and was named "USA Today's #1 Money Book."