Rich Dad Poor Dad by Robert Kiyosaki Summary

Rich Dad Poor Dad by Robert Kiyosaki Summary

Enjoy my summary of Rich Dad Poor Dad by Robert Kiyosaki that was originally published in 1997. If we want to be rich, we need to build up assets that generate cash flow. Happy Father’s Day!

I know Robert Kiyosaki has garnered a good deal of controversy in the last several years, but I tried to give the book the benefit of the doubt and I tried to find useful takeaways nonetheless.

In my personal finance journey, I realized the path for me to achieve the financial freedom required me to become an investor like Warren Buffett, so I have developed an appreciation for the merits and appeal of being a business owner.

There aren’t any business owners among my immediate and extended family members, most of them are professionals who gained advanced education. So I guess we all could benefit from emulating figurative rich fathers or grandfathers, in my case it’s Buffett.

Robert paints contrasting attributes of his rich and poor dads, the poor one being his actual father and the other rich one being his friend Mike’s dad. Robert’s poor dad was a highly educated PhD who valued job security and government entitlements and whose views on money Robert didn’t adopt.

In a similar way, my parents also value security by stressing the importance of having health insurance so I grew up always thinking I absolutely needed to make sure I had that but I also realize there are many pathways to wealth that go beyond securing a job with benefits.

Supposedly in 2016 the real identity was revealed that Robert’s rich dad was Richard Kimi and Mike is really Alan Kimi. Whether there really was a rich dad or not doesn’t matter, to me it’s interesting just to learn of a mindset about money and risk management.

He also wrote one of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is that the subject of money is taught at home and not in school.

Already a controversial generalization, Robert asserts that poor parents tell their children to “stay in school and study hard” while ending up with a poor person’s financial programming and mindset.

There are a lot of truisms in this book like how life pushes everyone around and some give up while others fight. Or how if you have no guts, you’ll live life playing it safe and give in to the avoidance of risk. This book could be more of a psychological pep talk for those who need a bit of a kick to be inspired to own their financial journeys. This isn’t really a how-to book.

Robert says how his poor dad said “the love of money is the root of all evil,” and his rich dad said “the lack of money is the root of all evil.”

Another contrasting idiom was how poor dad would say “I’m not interested in money,” while rich dad would say “money is power.”

Or that self-doubt holds people back, and it makes sense to me that in the real world, often the degree to which one has tenacity and audacity can decide one’s future as the book notes. And as much as he criticizes the school system, Robert graduated from school and in the early part of his life got jobs to make some money and learn how to sell before he would go on to building his real estate and other businesses.

I agree with the central premise of the book that in order to gain wealth, we need to gain financial education. So it boils down to how hungry we are to learn, which all of are capable of doing if we commit to learning new ways of doing things that we didn’t necessarily learn formally.

To have financial intelligence or IQ to then gain financial independence, Robert indicates we need knowledge in these broad areas of 1) accounting, 2) investing, 3) understanding markets, and 4) the law. When we know enough about these things, we open up more financial options to ourselves.

Robert attributes this idea from rich dad as the number one lesson: “the poor and middle class work for money. the rich have money work for them.” The main reason stems from how taxes affect different types of income.

When people get earned income from a job, there is an income tax bracket where there are progressive tax rates the more earned income someone makes in a year.

In contrast, investors and business owners may generate other types of income from assets that may be subject to different kinds of taxes like capital gains tax, which can sometimes be lower than some of the rates in the income tax bracket table. So someone with a lot of assets generating income may be proportionally taxed less for a similar amount of income as someone who got it from a job.

Another reason is because a business owner or corporation can deduct eligible business expenses before they are taxed on the income that’s left. This is arguably one of the most attractive reasons of forming a business, and it’s why Robert says the rich have layers of legal protection such as having assets in a corporation that protects them against lawsuits and the individual doesn’t own much to his or her own name.

Robert also includes diagrams of various ways cash flows through the wealth classes, with the rich focusing on having more in the asset column and thinking of each dollar as your employee.

While I understand what he’s trying to convey with the flows of cash, it is a bit misleading to draw a line to make it seem like the middle class doesn’t have any assets and has mainly liabilities and as though the rich have only cash going from assets to income.

Maybe it would be more accurate to draw thicker lines going through all the boxes and how the final columns of assets, liabilities, and income and expenses respectively leads to a contrasting net result.

And we should pay ourselves first, which is also a good business capital allocation move too. We all have the choice in how we direct our cash flows, a lot of it comes down to one’s sense of self-discipline and fortitude.

If you want to be wealthy it makes sense to be channeling as much of that cash into assets that produce more cash. Those who aren’t wealthy don’t direct cash flows this way, it is often just spent on things that are consumed and then gone.

I think a lot of people have also benefited from Section 1031 in the tax code of being able to delay paying taxes on real estate capital gains by rolling the gains into the purchase of another property. While it does seem appealing, it also seem a bit involved, so I’m going to gloss over how Robert is heavily pushing real estate investing.

Robert is trying to get a rise out of people by asserting that the less wealthier classes acquire liabilities that they think are assets. If you own a house and it just takes money out of your pocket, then he considers it a liability. But if you own a house as a rental property, it puts money into your pocket, so that’s an asset.

There are definitely some questionable things that he suggests, like how you want to be as close to the inside of “insider trading,” which I totally think is misleading.

Of course we all want to have as good of information as possible to make investment decisions, but he’s sort of encouraging speculative behavior with saying “you want to hear about the next boom, get in, and get out before the next bust.”

This is so anti-Buffett, and unlike Robert, Buffett is all about investing in good companies for the long term, not trading in the short term.

Overall, I think there are some decent takeaways from the book in how you want to stack the financial odds as much in your favor as possible if you want to be wealthy. And I agree that it takes some imagination for us to find or realize opportunities to make money.

And I like how Robert says to find heroes who make it look easy, and I don’t know if investing is really that easy, though it is simple as my heroes Charlie Munger and Warren Buffett would say.

The final takeaway is to take action and develop our financial aptitude if we want to achieve financial independence.

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