Rich Dad, Poor Dad

Categories : Finance Business

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🎯 The Book in 3 Sentences

💡 Key Takeaways

The rich don’t work for money, they have money to work for them.
Rich people acquire assets, which put money in their pockets, while the poor and middle class acquire liabilities, which take money out of their pockets. To build wealth, focus on buying assets.
Mind your own business by keeping expenses low, reducing liabilities, and diligently building a base of solid assets.
Financial IQ is made up of knowledge from four broad areas of expertise: accounting, investing, understanding markets, and the law.

✏ Top Quotes

Money is one form of power. But what is more powerful is financial education.

More money seldom solves someone’s money problems. Intelligence solves problems.

Job is an acronym for “Just Over Broke.”

📝 Summary + Notes

Lesson 1: The Rich Don’t Work For Money

The poor and the middle-class work for money.
The rich have money to work for them.
Avoid the trap of the two emotions, fear and desire.
Always use your mind to find opportunities to make money.

Lesson 2: Why Teach Financial Literacy?

Retirement does not mean not working. It means freedom.
It’s not how much money you make, it's how much money you keep.
You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know.
Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets.
An asset is something that puts money in my pocket.
A liability is something that takes money out of my pocket.
A person can be highly educated, professionally successful, and financially illiterate.

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The cash-flow pattern of a poor person

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The cash-flow pattern of a middle-class person

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The cash-flow pattern of a rich person

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Houses do not always go up in value
Impacts of owning a house:
- 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.
- Loss of education. Too often, people count their house and savings, and retirement plans as all they have in their asset column. Because they have no money to invest, they simply don’t invest. This costs them investment experience. Most never become what the investment world calls “a sophisticated investor”.
When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house.
As an employee who is also a homeowner, your working efforts are generally as follows:
- You work for the company: Employees make their business owner or the shareholders rich, not themselves. Your efforts and success will help provide for the owner’s success and retirement.
- You work for the government: The government takes its share of your paycheck before you even see it. By working harder, you simply increase the amount of taxes taken by the government. Most people work from January to May just for the government.
- You work for the bank: After taxes, your next largest expense is usually your mortgage and credit-card debt.

Lesson 3: Mind your own Business

Financial struggle is often the result of people working all their lives for someone else.</mark>
Keep expenses low, reduce liabilities, and diligently build a base of solid assets.
Real assets fall into the following categories:
- Businesses that do not require my presence. I own them, but they are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.
- Stocks & Bonds.
- Income-generating real estate.
- Notes (IOUs).
- Royalties from intellectual property such as music, scripts, and patents.
- Anything else that has value, produces income or appreciates, and has a ready market.
Rich people buy luxuries last, while the poor and middle class tends to buy luxuries first.

Lesson 4: The History of Taxes and the Power of Corporations

If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.
Financial IQ is made up of knowledge from four broad areas of expertise:
- Accounting: Accounting is financial literacy or the ability to read numbers. The more money you are responsible for, the more accuracy is required, or the house comes tumbling down. Financial literacy is the ability to read and understand financial statements which allows you to identify the strengths and weaknesses of any business.
- Investing: The science of “money making money.” This involves strategies and formulas which use the creative right-brain side.
- Understanding markets: The science of supply and demand. You need to know the technical aspects of the market, which are emotion-driven, in addition to the fundamental or economic aspects of an investment. Does an investment make sense or does it not make sense based on current market conditions?
- The law: A corporation wrapped around the technical skills of accounting, investing, and markets can contribute to explosive growth. A person who understands the tax advantages and protection provided by a corporation can get rich so much faster than someone who is an employee or a small-business sole proprietor.
Tax advantages: A corporation can do many things that an employee cannot, like pay expenses before paying taxes. Employees earn and get taxed, and they try to live on what is left. A corporation earns, and spends everything it can, and is taxed on anything that is left. It’s one of the biggest legal tax loopholes that the rich use.

Lesson 5: The Rich Invent Money

The single most powerful asset we all have is our minds. If it is trained well, it can create enormous wealth.
The author uses two main vehicles to achieve financial growth: real estate and small-cap stocks.
Three main skills of a successful investor:
- Find an opportunity that everyone else missed.
- Raise money.
- Organize smart people.

Lesson 6: Work to Learn - Don’t Work for Money

I recommend to young people to seek work for what they will learn, more than what they will earn.
The main management skills needed for success are:
- Management of cash flow.
- Management of systems.
- Management of people.
The most important specialized skills are sales and marketing. The ability to sell—to communicate to another human being, be it a customer, employee, boss, spouse, or child—is the base skill of personal success.
Communication skills such as writing, speaking, and negotiating are crucial to a life of success.

Lesson 7: Overcoming Obstacles

There are five main reasons why financially literate people may still not develop abundant asset columns that could produce a large cash flow:
- Fear. 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.
- Cynicism. Only a person’s doubts keep them poor.
- Laziness. Laziness by staying “busy”.
- Bad habits.
- Arrogance. To hide their own ignorance.

Lesson 8: Getting Started

Smart investors don’t time the markets. If they miss a wave, they search for the next one and get themselves in position.
1. Find a reason greater than reality. Find your “wants” and “don’t wants”. We want money for these things.
2. Make daily choices. Most people choose not to be rich. We have the choice of what to put in our minds. Choose how to educate yourself.
3. Choose friends carefully. You can learn a lot from them.
4. Master a formula and then learn a new one. Learn a lot of different things fast.
5. Pay yourself first. Don’t get into large debt positions that you have to pay for. Keep your expenses low. Build up assets first.
6. Pay your professionals well. Many brokers will spend time educating you, and they could be the best asset you find.
7. Get something for nothing. The sophisticated investor’s first question is: “How fast do I get my money back?”
8. Use assets to buy luxuries. Don’t buy them using your savings or with loans.
9. Choose heroes. When it comes to investing, too many people make it sound hard. Instead, find heroes who make it look easy.
10. Teach and you shall receive.

Lesson 9: Still Want More? Here are some to-do’s

Stop doing what is not working, and look for something new.
Look for new ideas.
Find someone who has done what you want to do.
Take classes, read, and attend seminars.
Make offers. Someone might say yes.
Action always beats inaction.