Five Lessons I Learnt From Book Rich Dad Poor Dad

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Rich Dad Poor Dad is a book written by Robert T. Kiyosaki with Sharon L. Lechter, C.P.A. It talks about “What the rich teach their kids about money that the poor and middle class do not.”

Robert calls his real father Poor Dad. His Poor Dad is highly educated and intelligent. He had Ph.D and had gone to Stanford University, the University of Chicago, and North Western University to do his advanced studies, all on full financial
scholarships.

Robert calls his best friend’s father Rich Dad who ironically had not even finished eighth grade. Both men were successful in their careers, working hard all their lives. Both earned substantial incomes. Yet Poor Dad struggled financially all his life. However the other became one of the richest men in Hawaii. One died leaving tens of millions of dollars to his family, charities and his church. The others left bills to be paid.

What differentiates Rich Dad from Poor Dad is his mind-set, his thought process? Poor Dad had a habit of saying “I can’t afford it” The Rich Dad forbade those words to be used. He insisted his children to say “How can I afford it?” One is a statement and the other is a question. One lets you off the hook, and the other forces you to think. By saying “I can’t afford it,” your brain stops working. By asking the question “How can I afford it?” your brain is put to work.

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The book further explains that rich get richer, the poor get poorer, and the middle class struggles in debt because subject of money is never taught in schools and colleges. Whatever little the subject of money is taught is at home by parents. Schools focus on scholastic and professional skills, but not on financial skills. This is reason that though lot of us earn good amount of money in life but very few know how to handle money.

Now that I have given you enough background about what this book is all about, let’s focus on the important lessons to be learnt from this fantastic book on financial education.

The poor and the middle class work for money. The rich have money work for them

Poor but highly educated Dad wanted his son to study hard, get good grades so as to find a safe, secure job with a big company. Rich Dad however wanted his son to learn how money works so his son could make it work for himself.

He explains most people are happy to work at a particular price. And they have a price because of human emotions fear and greed. First, the fear of being without money motivates us to work hard, and then once we get that pay check, greed or desire starts us thinking about all the wonderful things money can buy.

The pattern is then set. Get up, go to work and pay bills and the cycle continues. The fear of not paying their bills, being fired, of not having enough money, of starting over again keeps most people working at a job.

Even rich people think the same way. They think money can eliminate fear of not having money and being poor. So they amass tons of it only to find out the fear gets worse. They now fear losing it.

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Rich Dad explains to his son that money is just an illusion, truly like the carrot for the donkey. It’s only out of fear and greed that the illusion of money is held together by billions of people thinking that money is real.

Use emotions of fear and greed to your advantage for long term, and not simply let your emotions run you by controlling your thinking. Learn to use your emotions to think, not think with your emotions. A job is only a short term solution to a long term problem.

I am giving a small example to make you think. A service class person invests his saving in the bank in the form of Fixed Deposit and earns just interest because he is afraid of losing money and hence shuts his mind with any creative idea to multiply his money. Bank lends this money to a businessman. He invests this money in his business and earns many folds. In return, he only pays back interest to Bank. Businessman has actually overcome his fear and is open to experiment with new ideas to make money.

Why we need Financial Literacy

Most of us are focused too much on money and not our greatest wealth, which is our education. If we are prepared to be flexible, keep an open mind and learn, we will grow richer and richer. Instead if we believe money will solve our problems, then surely we will have a rough ride.

Intelligence solves problems and produces money. Money without financial intelligence is money soon gone. Most people fail to realize that in life, it’s not how much money you make, it’s how much money you keep and how many generations you keep it.

If you want to be rich, you need to be financially literate. What is missing from education is not how to make money, but how to spend money – what to do after you make it. It’s called Financial Aptitude – what you do with the money once you make it, how to keep people from taking it from you, how long you keep it, and how hard that money works for you.

Rich Dad knows the difference between an Asset and a Liability

If you want to be rich, you must know the difference between an asset and a liability. Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets. As per Rich Dad’s definition, an asset is something that puts money in your pocket. A liability is something that takes money out of your pocket.

Accordingly don’t be surprised when I tell you that, both your car and a bigger house are liabilities and not assets. The logic is simple. They are not adding cash to your pockets, instead they are taking out cash.

Purchase of car is followed by increase in repair maintenance cost as well as fuel cost. As car depreciates, you need to spend fresh money whenever you need to replace it with new car. Similarly a bigger house means bigger EMI’s, more spending on cleaning and maintenance and more cash outflow through taxes.

Rich Dad says when I want a bigger house; I first buy assets that will generate the cash flow to pay for the house. Your aim should be to have excess cash flow from your assets getting reinvested in assets. The more money that goes into assets, more the cash flow grows.

And as long as you keep your expenses less than the cash flow from the assets, you will grow richer, with more and more income from sources other than your own labour. 

Life just sort of pushes you around. Each push is life saying, “Wake up. There’s something I want you to learn.”

Life is the best teacher. It teaches us by throwing challenges at us. Those who are willing to fight back and learn from their experiences become wise, wealthy and happy. Others live all their life playing it safe. They are terrified of taking risks. They want to win, but the fear of failure is greater than the excitement of winning.

Never blame others for your problems

Stop blaming others for your problems. When you hold others responsible for your problems, the obvious solution would be you would like others to change. If you realize that you are the problem, then you can change yourself, learn something and grow wiser. Most people want everyone else in the world to change but themselves. On the contrary, it’s easier to change yourself than everyone else.

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I have tried to put together some of the takeaways of this excellent book on Financial Literacy. It’s not possible to cover all aspects of the book in a single post. Hence I suggest those who have a deeper quest for getting Financial Literacy, please read the complete Book “Rich Dad Poor Dad”.

If you have found the post to be informative, please share it with your friends and relatives. This will encourage the writer of this post to come with similar posts in future.

Source : Rich Dad Poor Dad