This article is a summary of Rich Dad Poor Dad by Robert Kiyosaki. Renowned for providing insights into the wealth gap, this book explains the differences on wealth management between the rich / poor. After reading this book the audience gains a surface level investors mindset, looking for opportunities to increase their wealth.
For reference, Kiyosaki had two dads:
Poor Dad – University Professor, who struggled financially.
Rich Dad – Financially literate, as he controlled the flow of money. However, he lacked conventional education.
Table of Contents
The Rich Don’t Work for Money
Generally, a rich person always knows how to make money outside of a 9-5 job. Clearly, life teaches people that employment within the work force is the sure fire way to earn money. Thus, security is formed since we know where our money is coming from. Consequently, people are relieved of poverty via this temporary physical and mental safety net.
Look no further, than the school system to see how employees are groomed, as students abide by the school’s standards. Undeniably, personal creativity is squashed in order to conform to the unquestioning hive mind.
As a result of this structure, the status-quo remains intact, whereby the bosses are in charge.
Moreover, life pushes people around by formulating obstacles, forcing the person to learn and adapt. Any inability to adapt leads to the person having no control over their life, constantly being shoved aside.
Therefore, people find something or someone to blame for their financial struggles. Conversely, rich people construct avenues to make money work for them.
In the same manner, fear and greed dictates most people’s lives .
That is to say, people work out of the fear of having no money. Then when they actually have money greed dominates their thought process through purchasing luxuries. Equally important, they equate money with pleasure, but the delights that are funded by money are short lived. Despite this, money is unable to solve their problems.
Hence, poor people do not question why they work – which is usually due to fear and desire. Rarely, do they ever ask is there an alternative to make money?
Why Teach Financial Literacy?
Above all, people who are rich are financially literate.
The reason being that understanding how money operates, generates the foundations of earning and investing money.
By the same token, rich people accrue assets. The poor and middle class purchase liabilities that they believe are assets.
With this in mind, we need to understand the difference between an asset and a liability. Let’s simplify all this mumbo-jumbo that you might read in a dictionary.
In short, an asset gives me more money in the future, whereas a liability loses money.
On the whole, a poor person’s cash flow can be summarized as:
| Income | Expenses |
| Salary from their job. | Food, rent, taxes, transportation, clothes |
Marginally different to the poor, the middle class acquire liabilities which feeds into their expenses.
Typically, liabilities include:
- Mortgage
- Car loans
- School loans
- Credit card debt
Meanwhile, the rich acquire assets which later acts as methods of income:
- Bonds
- Stocks
- Real estate
- Cryptocurrency
- Online businesses
- Intellectual property
In spite of all the money that most people earn from their jobs, they find ways to stay poor. Ergo, this is reflected by their choice of purchases. Undeniably, the poor have no awareness of how to efficiently manage their money.
Even though educated people climb the corporate ladder, gaining more income, they use this increase to fund liabilities. For instance, they buy an expensive house on a mortgage alongside furniture, which in the long-term destroys their financials.
Summary of Rich Dad Poor Dad – Wealth Management
Therefore, people who want to escape poverty need to manage their spending habits. The rich get richer because their assets exceed their expenses. In addition, the middle class struggles financially since their only form of income is through their jobs. Problematically, their taxes increase in accordance with their wage increases.
Subsequently, more spending tosses families into larger debt and into more financial insecurity.
Often the average worker is a homeowner or aspires to be. But this title comes with the baggage of duties:
- Usually, employees are over reliant on their company for a stable income source.
- Company workers allow the government to snatch their entitlements from your paycheck. On the negative side if you work harder for the promotion, the government’s taxes also increase.
- Unknowingly employees also work for the bank. In light of the mortgages and credit card debt, the bank benefits.
Granted that wealth indicates how much money you make without working, it is logical for everyone to start buying assets.
Mind Your Own Business
Essentially, most people confuse their profession with their business. While profession signifies their salaried job, they physically lack owning the business. For example, a janitor’s profession is being a cleaner (janitor) but they have no proprietorship over this business.
Hence, people need to at least have a side hustle alongside their job in order to build their business. In the meantime, they need to buy assets which do not require your time and control to make money. Immediately, these assets generate income on their own, providing a return on investment in the long run.
The History of Taxes and the Power of Corporations
Normally, the Robin Hood fantasy entails the rich class paying more taxes, whilst handing it to the poor. However, in reality the rich avoid paying taxes, leaving the burden on the middle class.
Historically, the government used taxes as a source of income from their citizens. Additionally, the wealthy classes avoided paying more taxes when the government attempted to increase their dues.
This was due to the rich banding together to form corporations.
But more on this later.
For now all we need to remember is that taxes are an instrument to garner money for the government. As per usual, governments want people to develop massive corporations, with many employees and locations. For this would allow the government to legitimately ask for more taxes.
Opposingly, investors respect your company more if they pay less taxes. Henceforth, businessmen and the government have separate goals. Problematically, as the government grows, more and more taxes are expected to pay for its infrastructure.
Generally speaking, corporations provide fiscal security for the rich. Furthermore, this enterprise is actually a legal partnership between people rather than taking a form of a factory / building. Besides being a legal body, the income-tax rates of a corporation is less than the individual income-tax rates.
Provided that the purpose of the corporation is to save money, participating employees cater to this end. Frequently, they recruit brilliant lawyers and bookkeepers, and convince government officials to change regulations or make lawful loopholes.
After pooling their assets, they utilize them to impact change. On balance, corporations capitalize on the alternate ways of diminishing taxes via scrutinizing the tax code.
How successful People Operate
Thus, knowledge is power.
Correspondingly, the tax collectors should be your primary enemy, as they will always collect more if given the chance.
What is more, successful people have knowledge over these certain areas to always stay rich:
- Accounting. Uniquely, bookkeeping is monetary education or the capacity to understand numbers. Likewise, this is an indispensable ability to construct a domain. The more cash you are answerable for, the more precision is required, or the house comes tumbling down.
- Investing. Exclusively, this denotes the ability to identify short and long term trends that will make you money.
- Understanding markets. After realizing supply and demand, you can differentiate between the technical parts of the market and those which are emotion-driven.
- The law. On the whole this entails insight into tax advantages and protection from lawsuits.
The Rich Invent Money
Unanimously, we as a whole have colossal potential, and we as a whole are honoured with gifts. However, the one thing that keeps us all down is some level of doubt. Yet, financial know-how simply boils down to having more options.
To demonstrate, the majority of people only know one answer, regarding their sinking ship of finances. Accordingly, they will work harder, save and borrow more.
Since, we are aware of the idea of asset management, we need to establish alternative streams of income.
Coupled with this idea is that there will always be opportunities at hand to make money. Indeed, these once in a lifetime opportunities come and go, but they are in abundance.
Just as the market goes up and down and economies prosper and crash, new opportunities will always arise. Given these rules, all we need to do is identify a money making angle.
With this in mind we need to be bold enough to exploit the moment without any hesitation.
Presently, prosperity is formed from information and data.
Conveniently, the individual with faster access to the data possesses the riches. Granted that no one likes losing money, including the rich, most people opt for secure investments. Ordinarily, reliable ventures lead marginal increases in income because they are cleaned / less risky.
Instead of placing our bets in multiple small increments across different baskets, the rich go all in into one investment. Subsequently, more money appears as a result of their educated inference.
Work to Learn – Don’t Work to Earn Money
In essence, most people are one skill away from earning money.
For example, an accountant’s income would exponentially increase if they knew how to market themselves – leading to more clients. Henceforth, they should learn the art of sales.
Up to the present, people have specialized in the workplace to climb the corporate ladder. Unions were formed amid these large numbers of specialized workers to protect their interests. To sum up, specialists have a fragile security within the workplace since their rank is only recognised by the company.
Beyond the idea of working to earn money is the notion of working to learn. As has been noted you want to gather little bits information from various fields. At the forefront of this philosophy is educating your strengths instead of job security.
Occasionally, you may wish address your weaknesses to cover the cracks in your armour. Albeit, this has to be completed at a superficial level as overcoming a personal weakness requires wasting time and effort. Different from harnessing your strengths, weaknesses are never going to be your forte, so often won’t lead to making money.
Now you must be wondering ‘what skills are the best to learn?’
Truly, sales and marketing dictates our success in this world.
I’m certain you have heard how everything in this world is a negotiation. But this is clearly true. On a daily basis you need to effectively communicate with a wide range of people. By all means, knowing what makes them tick – helps your favourability to them.
The ‘Help the Introvert’ Scale
Rich Dad Poor Dad
Rating : 3 Stars
Pros: In general, there is a clear explanation for the difference in mindset between rich and poor people. In addition, the flaws of modern jobs are logical and provide food for thought. For all of the information the book lacks, it does superficially tell you how to become rich. | Cons: Other than the message of acquiring assets, everything else seems rehashed from other self-help books. Personally, I feel as though many of the content could have been condensed. Likewise, many of the key messages were repeated throughout the book. |
If you enjoyed this Rich Dad Poor Dad Summary and wish to read the full book, then click here.
Nonetheless, if you want to make other people laugh by mastering conversational humour, then read this article.