"One of the reasons the rich get richer, the poor get poorer, and the middle-class struggles in debt is the subject of money is taught at home, not in school. Most of us learn about money from our parents."
Rich Dad Poor Dad is about personal finance.
The book tells Robert Kiyosaki’s story of growing up with two dads —his father and his best friend’s father. One dad was rich; the other was poor.
The two dads shaped his thoughts about money, spending, and investing. By observing his dad's financial habits, Kiyosaki learned the difference between working for money and having money work for you.
If you're looking for an introduction to personal finance, this is an excellent place to start. Rich Dad, Poor Dad is fun and simple, and while it only teaches the basics, it's a good beginner's guide.
Table of Contents
- Key Takeaways
- Rich Dad and Poor Dad: Two Opposing Perspectives
- Don't Work for Money
- Life: The World's Best Teacher
- Why Teach Financial Literacy?
- House: Asset or a Liability?
- Assets: Income Generating Machines
- Mind Your Own Business
- Buy Luxuries Last
- Cash: The Only Employee
- The Rich Invent Money
You build wealth by keeping expenses low, reducing liabilities, and diligently building a base of solid assets.
The rich focus on their asset columns while everyone else focuses on their income statements.
The rich buy assets.
The poor only have expenses.
The middle class buy liabilities they think are assets.
Rich Dad and Poor Dad: Two Opposing Perspectives
Poor Dad would say, “The love of money is the root of all evil.” But, Rich Dad would say, “The lack of money is the root of all evil."
Poor Dad repeatedly said, “I can’t afford it.” Rich Dad banned these words. Rich Dad asked: “How can I afford it?” Kiyosaki notes that the former is a statement and the latter is a question. One lets you off the hook, and the other forces you to think.
In the same way that proper physical exercise increases your chances for health, proper mental exercise increases your chances for wealth.
Poor Dad, a well-educated man, recommended, “Study hard so you can find a good company to work for.” But, Rich Dad, a college dropout, recommended, “Study hard so you can find a good company to buy.”
Poor Dad said, “When it comes to money, play it safe. Don’t take risks.” Rich Dad said, “Learn to manage risk.”
Poor Dad taught him how to write an impressive resumé, so he could find a good job. Rich Dad taught him how to write strong business and financial plans, so he could create jobs.
While Poor Dad would say, “I’m not interested in money,” or “Money doesn’t matter,” Rich Dad always said, “Money is power.”
Poor Dad wanted me to study hard, earn a degree, and get a good job to earn money. He wanted me to study to become a professional, an attorney or an accountant, and to go to business school for my MBA. Rich Dad encouraged me to study to be rich, to understand how money works, and to learn how to have it work for me. “I don’t work for money!” were words he would repeat over and over. “Money works for me!”
Don’t Work for Money
Financial education may be more powerful than money. Money comes and goes, but by understanding how money works, you can gain power over it and build wealth.
Positive thinking alone does not work. Most people go to school and never learn how money works. As a result, they spend their lives working for money. The poor and the middle-class work for money, but the rich make money work for them.
Life: The World’s Best Teacher
Life is the best teacher of all. Pain is information. Most of the time, life does not talk to you; it pushes you around. Each push is life saying, ‘Wake up. There’s something I want you to learn.’”
Rich Dad taught, “If you learn life’s lessons, you will do well. If not, life will continue to push you around. People do two things: Some let life push them around, while others get angry and push back."
Rich Dad said “if you’re the type of person who has no guts, you give up every time life pushes you. If you’re that type of person, you’ll live all your life playing it safe, doing the right things, saving yourself for some event that never happens.”
Rich Dad bluntly added, “Then you die a boring old man. You’ll have many friends who like you because you were such a nice hard working guy. But, the truth is you have let life push you into submission. Deep down you were terrified of taking risks. You wanted to win, but the fear of losing was greater than the excitement of winning. Deep inside, you and only you will know you didn’t go for it. You chose to play it safe.”
Finally, Rich Dad said, “You’d best change your view. . . You can change yourself, learn something, and grow wiser. Most people want everyone else in the world to change but themselves. Let me tell you, it’s easier to change yourself than everyone else.”
Described as “highly educated,” Poor Dad recommended doing what he had done. “Son, I want you to study hard, get good grades, so you can find a safe, secure job with a big company with excellent benefits.” But, Rich Dad says, “When it comes to money, most people want to play it safe and feel secure. So, passion does not direct them. Fear does.”
Rich Dad taught that fear keeps most people working at a job: the fear of not paying their bills, the fear of being fired, the fear of not having enough money, and the fear of starting over. That’s the price of studying to learn a profession or trade, and then working for money. “Most people become a slave to money—and then get angry at their boss.”
“You’re taxed when you earn. You’re taxed when you spend. You’re taxed when you save. You’re taxed when you die.” So, “Most people never see the trap they are in.”
Rich Dad says: "The fear of being without money motivates people to work hard, and then once they get paid, greed or desire starts them thinking about all the wonderful things money can buy.”
That sets a pattern in motion: get up, go to work, pay bills; get up, go to work, pay bills. People’s lives are forever controlled by this cycle of fear and greed. Offer them more money, and they continue the cycle by increasing their spending. This is what they call the “Rat Race.”
The joy that money brings is often short-lived, and they soon need more money for more joy, more pleasure, more comfort, and more security. “So, they keep working, thinking money will soothe their souls that are troubled by fear and desire. But, money can’t do that.”
There are people with millions who are more afraid now than when they were poor. They fear losing it all. “That weak and needy part of their soul is actually screaming louder.” They fear losing the big houses, the cars and the high life money has bought them.
So many people say, “Oh, I’m not interested in money.” Yet, they’ll work at a job for eight hours or more a day.
Why Teach Financial Literacy?
Rich Dad taught Kiyosaki to master the power of money, instead of being afraid of it. As Rich Dad says: “They don’t teach that in school and, if you don’t learn it, you become a slave to money.”
Living a life determined by the size of a paycheck is not living a life. “A job is a short-term solution to a long-term problem.”
That’s a problem with American schools that focus on teaching people to work for money, not how to harness money’s power. They do not teach that confronting fear, weaknesses, and neediness is the way out. Schools were designed to produce good employees, instead of employers.
Rich Dad warned, “the sooner you forget about needing a paycheck, the easier your adult life will be.” Your mind will show you opportunities when you stop looking for money and security. And, once you see opportunities, “you’ll see them for the rest of your life.”
Too many people are too focused on money and not on their greatest wealth — their education. If people are prepared to be flexible, keep an open mind and learn, they will grow richer despite tough challenges.
If you think money will solve problems, you will have a rough ride. Financial intelligence solves problems and produces money. “Money without financial intelligence is money soon gone.” It’s not how much money you make in life. It’s how much money you keep.
Instead of getting up and going to work because you fear not having the money to pay your bills, ask yourself, “Is working harder at this the best solution to this problem?”
For the rich, “Retirement” does not mean “not working.” Barring unforeseen cataclysmic changes, the rich can work or not work, and their wealth grows automatically, staying ahead of inflation. When your assets are large enough to grow by themselves, “It’s like planting a tree. You water it for a year, and then one day it doesn’t need you anymore. Its roots are implanted deep enough. Then, the tree provides shade for your enjoyment.”
Prepared to be flexible, keeping an open mind and learn, you will grow richer despite tough challenges. If they think money will solve problems, they will have a rough ride. Financial literacy solves problems and produces money.
If you are going to build the Empire State Building, you need a strong foundation. If you are going to build a home, all you need is a six-inch slab of concrete. Unfortunately, most people try to build an Empire State Building on a six-inch slab.
To achieve financial literacy, you must understand the difference between an asset and a liability: An asset puts money in your pocket. A liability takes money out of your pocket. “Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.”
“This is all you need to know. If you want to be rich, spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities.”
Educators do not teach how to make money. They try to teach how to manage money. This is called “financial aptitude” — what you do with the money once you make it, how to keep people from taking it from you, how to keep it longer, and how to make" money work hard for you.
The number-one expense for most people is taxes. For most Americans, their highest tax is Social Security. As an employee, the Social Security tax combined with the Medicare tax rate is roughly 7.5 percent. But, it’s 15 percent because the employer must match the Social Security amount. And, that 15 percent is money the employer can’t pay you.
Moreover, you still pay income tax on the amount deducted from your wages for Social Security tax — income you never received because it went directly to Social Security through withholding. In this way, making more money seldom solves someone’s money problems.
House: Asset or Liability?
Financial intelligence can solve problems. For instance, Poor Dad thought his house was an asset, but Rich Dad thought it was a liability.
If all your money is tied up in your house, you work harder because your money continues to pay expenses instead of adding to the asset column — the classic middle-class cash-flow pattern. “The greatest losses of all are those from missed opportunities.”
Deciding to own an expensive house rather than start an investment portfolio impacts an individual:
Loss of time during which other assets could have grown in value.
Loss of additional capital which could have been invested instead of paying for high-maintenance expenses related directly to the home.
No one says, “don’t buy a house.” But, you should understand the difference between an asset and a liability. If you want a bigger house, you first buy assets that will generate the cash flow to pay for the house.
Assets: Income Generating Machines
Your assets should generate more than enough income to cover expenses. If you reinvest the balance of the assets, they continue to grow — this is how the rich get richer!
The middle class finds itself in a constant state of financial struggle. Their primary income is wages. But, as their wages increase, so do their taxes. And, if they treat their home as their primary asset, they fail to invest in income-producing assets.
The middle-class pattern treats the home as an investment. It follows a pay raise means you can buy a larger home or spend more. And, this is the foundation of a debt-ridden society. “Increased spending throws families into greater debt and financial uncertainty, even though they may be advancing in their jobs and receiving raises on a regular basis.”
The same logic and fear drive middle-class investors into mutual funds with their philosophy of “Play it safe. Avoid risk.” Instead, you should concentrate on buying income-generating assets. That’s the best way to get started on a path to building wealth.
As an employee who is also a homeowner, your working efforts look like this:
Employees make their business owner or the shareholders rich, not themselves. Employee efforts provide for the owner’s success and retirement.
Employees also work for the government which takes its share of paychecks. By working harder, employees simply increase the amount of taxes taken by the government. Most people work the first five months of the year for the government.
And, employees work for the bank. After taxes, their next largest expense is usually a mortgage and credit-card debt.
The problem with simply working harder is each of these three levels takes a greater share of your increased efforts.
Wealth is your ability to survive so so many days forward. So, you might ask: “if I stopped working today, how long could I survive?”¹
Your net worth includes non-cash-producing assets, like stuff you buy that sits in your garage and picks up dust.
“Wealth is the measure of the cash flow from the asset column compared with the expense column."
Mind Your Own Business
Your business revolves around your asset column, not your income column.
What you consider your net worth is not necessarily accurate because, when you begin selling your assets, you're taxed for any gains.
People put themselves in deep financial trouble when they run short of income. To raise cash, they sell their assets. But, their g assets generally sell for only a fraction of the value listed on their personal balance sheet. And, if there is a gain on the sale of the assets, they are taxed on the gain. So again, the government takes its share reducing the amount available to help them out of debt. Someone’s net worth is often “worth less” than they think.
Start minding your own business. Keeping your daytime job, you can still start buying real assets, not liabilities or personal effects that have no real value. Even a new car loses nearly 25 percent the moment you drive it off the lot.
Rich Dad urged me to acquire I loved. “If you don’t love it, you won’t take care of it.” He meant that, once a dollar goes into your asset column, you don’t want to let it out. Make that dollar your employee. The best thing about money is it works 24 hours a day and can work for generations.
Buy Luxuries Last
Rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.
The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance. They buy luxury items like big houses, diamonds, furs, jewelry, or boats because they want to look rich. They look rich; in reality, they get deeper into debt on credit. The “old-money” people, the long-term rich, build their asset column first. Then, the income generated from the asset column buys their luxuries.
The History of Taxes and the Power of the Corporation
In 1874, England made income tax a permanent levy on its citizens. In 1913, an income tax became permanent in the United States with the adoption of the 16th Amendment to the U.S. Constitution. At one time, Americans were anti-tax. It had been the tax on tea that led to the famous Tea Party in Boston Harbor, an incident that helped ignite the Revolutionary War. It took approximately 50 years in both England and the United States to sell the idea of a regular income tax.
Both of these taxes were initially only levied against the rich. The idea of taxes was made popular, and accepted by the majority, by telling the poor and the middle class that taxes were created to punish the rich. This is how the masses voted for the law, and it became constitutionally legal. Intended to punish the rich, taxes wound up punishing the same people who voted for it, the poor and middle class.
The rich have made smart use of corporations for decades.3 The rich created the corporation as a vehicle to limit their risk to the assets of each voyage. The rich put their money into a corporation to finance the voyage. The corporation then hired a crew to sail to the New World to look for treasure. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage.
Knowledge of the corporate legal structure gives the rich a vast advantage over the poor and the middle class. For example, the income-tax rate of a corporation is less than the individual income-tax rates. In addition, certain corporate expenses are paid with pre-tax dollars.
The Tax Code of the United States also allows other ways to reduce taxes. Most of these vehicles are available to anyone, but it is the rich who find them because they mind their own business. For example, “1031” is jargon for Section 1031 of the Internal Revenue Code which allows a seller to delay paying taxes on a piece of real estate sold for a capital gain through an exchange for a more expensive piece of real estate. Real estate is one investment vehicle that has a great tax advantage. As long as you keep trading up in value, you will not be taxed on the gains until you liquidate.
In a litigious society, everybody wants a piece of your action. The rich hide much of their wealth using vehicles like corporations and trusts to protect their assets from creditors. When someone sues a wealthy individual, they are often met with layers of legal protection only to find the wealthy person owns nothing. They control everything but own nothing.
The poor and middle class try to own everything and lose it to the government or to fellow citizens who like to sue the rich. The people who lose are the uninformed, the ones who get up daily and diligently go to work and pay taxes.
Cash: The Ultimate Employee
Rich Dad played the game smarter, and he did it through corporations — the biggest secret of the rich.
The tax man always takes more if you let him. The first lesson of having money work for you, as opposed to you working for money, is all about power. If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.
As Rich Dad put it, “Each dollar in my asset column was a great employee, working hard to make more employees and buy the boss a new Porsche.” Many employers feel that advising their workers to mind their own business is bad for business. But, for Rich Dad, focusing on his own business and developing assets made him a better employee because he now had a purpose
Often in the real world, it’s not the smart who get ahead, but the bold. If fear is too strong, the genius is suppressed.
Most people only know one solution: work hard, save, and borrow. If you are the person who is waiting for the right thing to happen, you might wait for a long time. It’s like waiting for all the traffic lights to be green for five miles before you start your trip.
Putting money away monthly is a sound idea. It is one option — the option most people subscribe to. The problem is this: It blinds the person to what is going on. Putting money away can cause people to miss major opportunities for much more significant growth of their money.
The Rich Invent Money
Money is invented, created, and protected using financial intelligence. A small amount of money can grow if you understand financial statements, investment strategies, a sense of the market, and the laws.
If people are not versed in these subjects, they must follow standard dogma to play it safe, diversify, and only invest in secure investments. The problem with “secure” investments is they are often sanitized, that is, made so safe the gains are less.
The idea in anything is to use your technical knowledge, wisdom, and love of the game to cut the odds down, to lower the risk. Of course, there is always risk. It is financial intelligence that improves the odds.
Great opportunities are not seen with your eyes. They are seen with your mind. Most people never get wealthy simply because they are not trained financially to recognize opportunities right in front of them.
When it comes to money, the only skill most people know is to work hard. “Job” is an acronym for “Just Over Broke.”
Rich Dad says, “Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.” So, he recommends to young people to seek work for what they will learn, more than what they will earn.
Life is like going to the gym. The most painful part is deciding to go. Once you get past that, it’s easy.
For the World War II generation, it was considered bad to skip from company to company. The rule of thumb was: “Highly specialized; then unionize.” It’s the smart thing to do. That is, the more specialized you become, the more you are trapped and dependent on that specialty. Today, this is no longer true.
Gifting money is the secret to most great wealthy families. That is why there are organizations like the Rockefeller Foundation and the Ford Foundation. These organizations are designed to increase family wealth, while at the same time, giving it away in perpetuity.
Rich Dad knew that failure would only make him stronger and smarter. It’s not that he wanted to lose. He just knew who he was and how he would take a loss. He would take a loss and make it a win. That’s what made him a winner and others losers.
Rich people don’t bury their failures. They get inspired by them. They take their failures and turn them into rallying cries. Failure inspires winners. Failure defeats losers. John D. Rockefeller said, “I always tried to turn every disaster into an opportunity.”
Failure is the biggest secret of winners. It’s the secret that losers do not know. The greatest secret of winners is that failure inspires winning; thus, they’re not afraid of losing. A savvy investor knows the seemingly worst of times is actually the best of times to make money. When everyone else is too afraid to act, they pull the trigger and get rewarded.
¹ Of course, this is one definition of wealth.