Rich Dad, Poor Dad – Detailed Book Summary

Rich Dad, Poor Dad – What the rich teach their kids about money – that the poor and middle class don’t is one of the most popular books in personal finance.  The book has interesting stories from the life of the author, Robert Kiyosaki.  The title of the book is based on two dads – “Rich Dad” is Kiyosaki’s friend’s dad who accumulated his wealth through entrepreneurship and “Poor Dad” is Kiyosaki’s own biological father who did not attain financial independence despite working hard.

Rich Dad, Poor Dad – Book Summary


The author had two fathers – a rich one and a poor one. His biological father, the poor father, was highly educated, had a Ph.D., and went to Stanford, University of Chicago, and Northwestern University.  The rich father never completed eighth grade.

Both men had fantastic careers and earned substantial incomes. But the poor dad always struggled financially. The rich dad became one of the richest men in Hawaii, leaving behind millions of dollars. The poor dad left bills to be paid.

Having two fathers helped the author compare their advice and then choose for himself. He spent much of his time reflecting on the contrasting ideas.

We learn about money from our parents and not at school. The rich dad always exercised his brain when it came to finances whereas the poor dad put it to sleep. The rich dad would ask, “How can I afford it?”, whereas the poor dad would simply say, “I can’t afford it”.

The rich dad believed that he didn’t work for money, the money worked for him.

The Rich Don’t Work For Money

Most people work very hard for little money. They prefer the illusion of job security and a three-week vacation every year. After a lifetime of service, they are happy to get a small pension when they retire.

People are driven by fear and greed (desire). First, they work hard to get a paycheck because the fear of not having money motivates them. Then once they get that paycheck, greed sets in and they think about all the things money can buy. The pattern of fear and greed takes over their life. It’s a rat race – offer them more money and they will spend more money.

Kiyosaki and his friend Mike were able to get free comic books from the distributor because they worked at the rich dad’s store. They set up a library that was open between 2:30 pm and 4:30 every day. Children could pay a 10-cent admission fee and read as many books as they want. In 3 months, they made $9.50. They paid Mike’s sister $1 to manage the library. The two friends learned an important lesson: you can make money even when you are not there.

Make money work for you, even when you are not physically there. Don’t be dependent on your employer for money.

Why Teach Financial Literacy?

Know the difference between assets and liabilities. An asset is something that puts money in your pocket. A liability is something that takes money out of your pocket.  The rich spend their money acquiring assets. The poor and middle-class people acquire liabilities that they think are assets.

Kiyosaki talks about a typical story young recently married couple. They live in an apartment initially but slowly save money and then move into their own dream home. Both have careers and incomes. As time goes on, their income goes up, their expenses go up as well. Their liabilities column is full of mortgage and credit card debt. They are now trapped in a rat race. Growing incomes are matched or exceeded by their growing liabilities.

Most people work for everyone but themselves. They work for the owners of the company, then for the government (through taxes), and finally for the bank that owns their mortgage.

A person can be highly educated, professionally successful, and financially illiterate. The poor dad thought that his home was an asset whereas the rich dad thought his home was a liability. A bigger home meant bigger expenses. The author agrees that a home is an emotional thing and many people may not agree with his assessment that a home is a liability.

Kiyosaki cites three reasons why owning a home is not a good investment.

  • Loss of time – you could have invested in other assets that grow more in value during that time
  • Loss of additional capital – Homes have high maintenance expenses, instead, we could have invested in other assets
  • Loss of Education – Most people only have homes and retirement savings in their asset column. Nothing else. This costs them valuable investment experience. They lose the opportunity to become sophisticated investors because they own too few assets.

The middle class is constantly struggling because their primary income is through their salary. As their wages increase, they pay more in taxes.  Their expenses go up in line with their salary increases, setting up a rat race. They treat their home as a primary asset, instead of investing in income-producing assets.

When your income from your assets fully covers your monthly expenses, you are no longer dependent on your wages. If you quit your job, you could still cover your monthly expenses. You should reinvest excess cash flows from assets back into assets. As long as you keep your expenses lower than your cash flows from these assets, you are getting richer.

Mind Your Own Business

Most people struggle financially because they work for someone else. They have nothing at the end of their careers to show for their efforts. To become financially secure, you need to mind your own business. Your business revolves around your asset column, not your income column. If you are thinking, “I need a raise” or “I will go to school to get more training so I can get a better job”, you are still focused on the income column. But financial security can only be attained if you put money to purchase income-generating assets.

Keep your daytime job but start buying real assets, not liabilities.   Invest in businesses that do not require your presence and can be managed by other people. Real assets fall into the following categories.

  • Stocks
  • Bonds
  • Income-producing real estate
  • Notes (IOUs)
  • Royalties from intellectual property such as music, scripts, or patents
  • Anything else that has value, produces income or appreciates, and has a ready market

Kiyosaki loves real estate but notes that it may not be the case for everyone.  His real estate strategy is to start small and keep trading to bigger properties. Doing so delays paying taxes on his grains and allow value to increase dramatically. He also loves small-cap stocks but generally sells them within a year.

When you have money, it is okay to indulge in luxuries. An important difference between rich people and poor people is that rich people buy luxuries last while poor and middle-class people buy luxuries first. For poor people, these luxuries make them look rich but in reality, they just get deeper into debt. The rich buy luxuries with the income from their assets whereas the poor buy luxuries with their own sweat, blood, and children’s inheritance.

The History of Taxes And The Power Of Corporation

When the idea of levying taxes was initially proposed, only the rich were taxes. The idea was accepted by the majority because the poor and the middle class were told taxes were created to punish the rich. But the rich saw this differently because they don’t play by the same set of rules as everyone else. They created corporations, which helped limit their risks. This became popular in the days of sailing ships. The rich will put their money into a corporation to finance the voyage. The corporation would hire a crew to sail to the New World to look for treasure. If the ship was lost, or the crew lost their lives, their loss would be limited to the money invested in their voyage.

But over time, the government needed more money and started taxing everyone including people at the very bottom of the economic ladder. A corporation is just a file with legal documents sitting in some attorney’s office and registered with a state government agency. A corporation is a legal body without a soul.  It became popular because the income-tax rate of a corporation is less than individual income-tax rates. In addition, certain expenses could be paid by the corporation with pre-tax dollars.

An average American works four to five months for the government just to cover their taxes. That’s way too long. Every time you try to punish the rich, they find a way out. They have the money, power, and the intent to change things.  They have accountants, attorneys, and can persuade politicians to change laws or create loopholes. Consider the “1031 exchange” – it allows a real estate seller to delay paying capital gains taxes on a piece of real estate sold through an exchange of a more expensive piece of real estate. As long as you keep trading up, you will not be taxed on gains until you liquidate.  It’s a great way for the rich to accumulate assets.

If you work for money, you give power to your employer. If money works for you, you keep the power and control it.  As Kiyosaki started working for Xerox, he was disappointed every time he looked at his paycheck.  His deductions were getting bigger as he made more money. Who was he working for? Who was he making rich? He started building his real estate assets in Hawaii when the real estate was set to boom in the area.  In less than three years, he was making more from his real estate than he was from his sales job at Xerox.

Financial knowledge is made up of 4 parts.

  • Accounting – The financial literacy to read numbers. The ability to read and understand financial statements allows you to identify the strengths and weaknesses of any business
  • Investing – It is the science of making money.
  • Understanding markets – this involves understanding supply and demand. You need to understand the technical aspects of the market – which ones are driven by emotions and which ones are driven by fundaments.
  • The law – You need to understand the tax advantages and protections provided by the law. Anyone who understands that will get rich faster than someone who is an employee or a small business owner. It’s the difference between someone walking and someone flying
    • Tax advantages – A corporation can do many things employees cannot like pay expenses before paying taxes. Employees earn and get taxed, then try to live on what’s left. A corporation earns, spends everything it can, and is taxed on what’s left. It’s one of the loopholes the rich use. Board meetings in Hawaii, car payments, restaurants meals, etc. can be legal expenses for a corporation.
    • Protection from lawsuits -We live in a litigious society. It is important to protect your assets.  When someone sues a rich person, they will quickly find out that he owns nothing. He controls everything but owns nothing. Corporations provide legal protection for your assets.

The Rich Invent Money

In the real world, it’s not the smart who get ahead but the bold. Each of us can be brave and brilliant. Yet we struggle with self-doubt and excessive fear. To be financially successful, technical knowledge alone is not sufficient. You need to have courage.

Kiyosaki uses a CASHFLOW game to teach people how money works. The game helps people understand the interactions between the income statement and the balance sheet. The goal is to increase the cash flow from your assets to exceed your monthly expenses. Once you do that, you get out of the rat race. Though the game is simple, many participants in his course struggle to understand the underlying concepts. They feel that playing the game is a waste of time and that they didn’t get anything from the course.

Your mind is the single most powerful asset you have. If it is trained well, it can create enormous wealth. The author gives an example of the Phoenix real estate market. The real estate market was tough and homes were selling for $20,000 to $25,000 below market. He was able to buy the property with almost no money down and sell it for profit in a short amount of time.

You have two options.

  • Option 1: Work hard. Pay 50% in taxes. Save the rest and get 5% interest (which is also taxed)
  • Option 2: Take the time to develop financial intelligence. Harness the power of the brain and build the asset column

To have huge gains, you must take risks. Secure investments are often sanitized – that is they are made safe, so your returns will be less. Your financial intelligence will help you assess risks properly to improve your asset column. Taking risks should not be compared to gambling. It’s gambling if you don’t know what you are doing. It’s gambling if you are throwing money into a deal and praying.

There are two kinds of investors.

The first kind buys packaged investment through the retail outlet, financial advisor, or a stockbroker. It could be a mutual fund, REIT, stock, or a bond. It is a simple way of investing. It is like buying something from a shelf at a store.

The second kind of investor creates investment. He assembles all the pieces of the deal the same way someone assembles a computer. They are called professional investors.  You need three main skills to be this kind of investor.

  • Find an opportunity that everyone missed.  Use your financial intelligence to evaluate opportunities that are not immediately visible to others
  • Raise money – you don’t always need a bank to raise money. These people know how to raise capital from others.
  • Organize smart people – Intelligent people hire people who are more intelligent than they are, and work with people more intelligent than they are.  When you need advice, choose your advisers carefully.

There are always risks in every transaction. Manage risks, don’t avoid them.

Work to learn – Don’t work for money

Job security meant everything to the educated dad. Learning meant everything to the rich dad.

Kiyosaki runs into talented people who earn too little. He tells the story of a journalist he met in Singapore. She had incredible writing skills but was unwilling to take sales courses that would have greatly helped her income. She believed that the salespeople she had met in her life were in it for the money but that she was a “professional”. Most people are just one skill away from increasing their income exponentially.

A newspaper reporter could take some courses in copywriting and sales. Instead of working at the newspaper, she could work at an advertising agency. She could learn valuable skills in public relations. She could write her novels at night. She will have the skills to better sell her book and become a “best-selling author”.

Kiyosaki’s rich dad encouraged him to learn a little bit about a lot. Kiyosaki worked for years in different areas of the rich dad’s company. He wanted Kiyosaki to know a little bit about every aspect of his business empire.

The hardest part of running a company is managing people. Upon returning from Vietnam, Kiyosaki joined Xerox as a salesman because it had one of the best sales training programs in America. His poor dad was ashamed. Being an intellectual, he thought that salespeople were below him.

Jobs is an acronym for “Just Over Broke”. Most schools don’t financial intelligence is intelligence. Most workers work and pay bills.  Workers worked hard enough not to be fired, and owners pay just enough so that workers don’t quit. Most workers focus on working for pay and benefits that reward them in the short term but are often disastrous in the long run.

Kiyosaki recommends young people seek works where they will learn, more than what they will earn.  Workers should take a long view of their life. Look beyond job security. Consider taking a second job that will teach them. Kiyosaki recommends joining multi-level marketing companies to learn sales skills.

The poor dad wanted Kiyosaki to specialize. To him, specialization was a way to get paid more. But knowing a little about a lot of things will pay dividends in the long run. Even companies groom leaders by moving them from department to department so that they are ready to lead the company one day.

The main management skills needed for success are:

  • Management of cash flow
  • Management of systems
  • Management of people

Kiyosaki believes that sales and marketing are specialized skills.  The ability to communicate to another human being, whether are customers, employees, bosses, or children, is the base skill for all personal success. Being technically specialized has strengths and weaknesses. But without communication skills, technical people will not earn much.

The rich dad gave a lot of money away – to churches, to charities, and his foundation. He knew that to receive money, he had to give money. Giving money is the secret to most wealthy families. His poor dad didn’t have much and was hoping to give some money away one day when he had some money saved up.

Overcoming Obstacles

There are five reasons why financially literate people don’t build their assets and cash flow. They are

  • Fear
  • Cynicism
  • Laziness
  • Bad Habits
  • Arrogance

Overcoming fear

Everyone has fear of losing money – even the rich. What’s different between the rich and the poor is how they handle the fear.  To avoid losing money, most people play it too safe.  But in life, winning always follows losing. It’s like learning to ride a bike. You fall down many times but eventually, learn to balance the bike and ride it.

For most people, the reason they don’t win financially is that the pain of losing money is far greater than the joy of being rich.  Failure makes you stronger and smarter.  Be inspired by your failures and turn them into rallying cries.

Most people have a balanced portfolio and play it safe. But if you have little money and want to become rich, you must be focused, balanced. Thomas Edison, Bill Gates, Donald Trump, George Soros, and George Patton succeeded because they were focused.  The poor pot their eggs in too many baskets. The rich focus and follow one course until they succeed.

Overcoming cynicism

All of us have doubts. Most people are poor when it comes to investing because they are running around yelling, “The sky is falling”. The cynics never win. Cynics criticize and winners analyze. Analysis allowed winners to see that the critics were blind, and to see opportunities that everyone missed. Finding what other people miss is the key to success.

When you are in doubt and feeling a little afraid, do what Colonel Sanders did to his little chicken. He fried it.

Overcoming laziness

Busy people are the laziest.  We all hear stories of a businessman who works hard. The wife is left to take care of the children. He thinks he is doing the best for the family. He has relationship problems with his wife and his work performance slips. He eventually loses his job.

People are too busy to take care of their wealth and health. The cause is the same in both cases. They stay busy as a way of avoiding something they don’t want to face. They are lazy by being busy.

“I can’t afford it” shuts down your brain. “How can I afford it?” opens up possibilities, excitement, and dreams. Many people feel guilty about their greed or desire. It’s old conditioning from childhood.  To get out of the rat race, be a little greedy. It is the best cure for laziness.

Overcoming bad habits

Our lives are a reflection of our habits than our education.  The poor dad paid his bills on the first of the month but he had  very little leftover. He has poor habits because he pays everyone else. What about paying himself?

To become financially stronger, pay yourself first.  If you pay yourself last, you become weaker.

Overcoming arrogance

Every time you are arrogant, you lose money. People use arrogance to hide their ignorance. When you know you are ignorant in a subject, start educating yourself by finding an expert in the field or by reading a book.

Getting started

Gold is everywhere. We are just not trained to see it. Just like riding a bike. At first, you wobble a little but eventually, it will be a piece of cake. Here is the 10-step process that Kiyosaki suggests

Find a reason greater than reality: the power of spirit

Most people want to be rich. Then reality sets in. The road to financial freedom looks difficult with too many hills to climb. It’s easier to just work for money as an employee.  Your purpose is a combination of “wants” and “don’t wants”. Your wants may be to have control over your time and money. You “don’t wants” may be to not work all your life. Without a strong reason or purpose, everything in life is hard. Find your purpose.

Make daily choices: The power of rich

Our spending habits reflect who we are. Poor people have poor spending habits. The poor don’t build their asset column. The choices you make every day decide whether you get rich. Invest in your education because your mind is a real asset. Most people simply buy investments rather than learning and investing.   Kiyosaki only paid $385 for a course on real estate. That made him at least $2 million.  Take a long view on wealth. Don’t believe in get-rich schemes.

Choose friends carefully: the power of association

Seek out friends who have money for their knowledge. People with a lot of money often report that their poor friends ask them for a loan or a job, but never ask them how they made their fortune.  Smart investors don’t time the markets. If they miss one wave, they wait patiently for the next one.

Master a formula and then learn a new one: the power of learning quickly

You become what you study. Your mind is powerful, so be careful what you put in your head. Kiyosaki took a course on buying real estate foreclosures. He put his learnings into action for three years. Once he mastered that formula, he was looking for other formulas. He attended classes designed for traders. Though he didn’t learn from every class, he did pick up a few things that made him a more profitable investor.

Pay yourself first: the power of self-discipline

This is the most important step in your path to financial freedom. Most people pay their bills first and pay themselves last. Paying bills is important but take care of your asset column first. Be astute enough to manage your finances such that you don’t get in a tough financial situation. To pay yourself first, keep the following in mind.

Don’t get into large debt. Keep your expenses low.

When you come up short, use the pressure to make more money and resist the urge to dip into your savings or investments

Pay your brokers well: the power of good advice

When selling a home, many people want to sell it themselves. They take the “For Sale By Owner” route. Or they use discount brokers. We live in an information age where information is priceless.  A good broker can save time and money since he has his ears on the market. Note that not all brokers are the same. Find a broker who has your best interests at heart – the ones that will spend time educating you.

Be an Indian giver: the power of getting something for nothing

“Indian giver” refers to cultural misunderstanding. When the first European settlers came to America, they were shocked by some of the practices of  American Indians. If a settler was cold, the American Indian would offer a blanket, which the settlers assumed for a gift. When the settlers asked for the blanket back, the settlers were offended.

A question every investor should ask is: how fast can I get my money back? Wise investors look for more than ROI. They look at the assets they get for free once they get their money back. An example would be investing in stock but once the stock starts moving in your favor, take your initial investment out, but let the rest ride. It’s essentially free money.

Use assets to buy luxuries: the power of focus

Use your desire to consume to inspire and motivate you to invest. Most people focus on borrowing money to get the things they want. The earlier you train yourself to be the master of money the better.

Choose heroes: the power of myth

Heroes don’t just inspire us. They make things look easy. If you are a real estate investor, learn how he negotiates and puts together deals. When it’s your turn to make a deal, you will subconsciously be acting like Trump.

Teach and you shall receive: the power of giving

Whenever you feel short or in need of something, give what you want first and it will come back in buckets. It applies to not just money but a smile, love, or friendship.

 Some To Do’s

  • Stop doing what you are doing. Reassess what you are doing for better results
  • Look for new ideas – Read books for new investing ideas.
  • Find someone who has done what you want to do
  • Take classes and attend seminars
  • Make lots of offers if you want to do real estate
  • Jog walk or drive a certain area for 10 minutes once a month
  • Shop for bargains in all markets
  • Look in the right places.
  • Think big
  • Learn from history – All big companies start as small companies.
  • Action beats in action

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