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Long story short, “Rich Dad Poor Dad” is about understanding how the rich get richer by building their wealth and leveraging money in a way that is unconventionally taught. The way the rich view money is as an asset that is leveraged to multiply that into even more money.
Why do we go to school?
As kids grew up, they were always taught that the reason why they went to school, strived for good grades, and secured a steady job was to build enough wealth to get “rich” for retirement.
If that is the case, why do the richest people on the planet seem to not follow this conventional path? It always seems that the “rich” gets RICHER, while everyone else is fighting for scraps.
As reality begins to hit, many of us question as to why we remain in our steady paying jobs and secure corporate environments for YEARS, if most of us won’t ever reach the upper echelon of wealth.
Kiyosaki dives into the financial practices and applications that help us understand how the rich view money, and use it as a tool to build wealth.
Here he illustrates six lessons that help individuals build wealth and leverage money to make the rich richer:
- Don’t work for Money
- Financial Literacy
- Mind your own Business
- Taxes and the power of Corporations
- Inventing Money
- Work to Learn
For those who don’t know
Robert Kiyosaki is businessman and author who advocates for financial freedom and financial literacy. He is most known for his book Rich Dad, Poor Dad and leverages his brand to teach personal finance.
Lesson #1: The Rich Don’t work for Money
The poor and the middle class work for money, the rich have money work for them.
It probably sounds crazy to not work for money, but this is actually one of life’s biggest traps. While is it completely understandable that we need money to afford our basic necessities and expenses, relying on an employer to provide a paycheque is one of the biggest misconceptions to building wealth.
The main culprit of working for money is the government collecting taxes. As people continue to earn money from an employer, a portion of their income is taken by the government before getting the chance to spend it.
As the government takes more money, human behaviours of fear and greed drive us to continue to work for an employer as the lack of money motivates us to work even harder, while the desire of materials would drive us to spend more.
With this, an endless loop is created.
Lesson #2: The Rich learn Financial Literacy
When it comes to building wealth, the understanding of accounting is essential. In order to simplify this, think of accounting as the story of numbers between assets and liabilities.
- Assets: What generates income
- Examples: Stocks, real estate, bonds, notes
- Liabilities: Expenses to be paid off
- Examples: Rent, car loans, credit card debt
The primary reason why the rich learn Financial Literacy is to understand the principle of accumulating assets that exceed their amount of liabilities, while the poor and middle-class rack up liabilities such as credit card debt and loans without sufficient income to pay for them.
One of the biggest traps to building wealth is when a person or household’s income tends to rise, their expenses would rise as in proportion to the amount of income. With this, an endless loop of needing to acquire more money to pay off even more expense is created, and the problem is never solved.
When it comes to money problems, Kiyosaki would say:
If you find you have dug yourself in a hole… stop digging.
Lesson #3 + 4: The Rich Mind their own Business & the Power of Taxes
Combining the principles of Lessons #3 and #4, the rich focus on their wealth like a business. Instead of occupying themselves with how much wages they would get from an employer, they would think about how much income would be produced from their assets.
- Income from wages: Pay cheque or income from an employer, contractor or corporation
- Income from assets: Income from self-owned or generated streams such as investments, real-estate or owned corporations
The main difference between the two, is caused by one of life’s certainties, taxes.
Income from wages and employers are taxed by the government before you receive it.While on the other hand, the income from assets is earned, you can spend it to pay off expenses, then the government declares a portion for tax.
Lesson #5: The Rich invent Money
Coming up with ways to make money in life is like navigating a complicated game where the rules are always changing and its feedback smack us straight in the face.
In order to master this game, the rich utilize their most powerful asset, their minds. The idea of making money is not a straight path, as there are many conventional and unconventional ways to make different amounts of it.
The way the rich leverage their minds, is to develop their financial intelligence and expertise. The more their mind was developed, the more opportunities they would seek through connecting the dots of the knowledge they have gained.
Kiyosaki would list 4 main domains that make up financial intelligence:
The numbers and story behind assets and liabilities
The method of taking money, to create even more money
The economic landscape of consumer demand vs market supply
The boundaries and guidelines of where money would be allowed to operate ethically
“The more you learn, the more you earn” (Warren Buffett)
Lesson #6: The Rich work to Learn
This goes back to our original question of “Why do we go to school?”
The rich answer this question with the intent of receiving education, and to enter the workforce with the purpose of LEARNING.
The purpose of the education system is to help us develop our way of thinking and to LEARN. Unfortunately, this purpose has been drifting away as it is taught in mosts school and jobs to become single-skill employees.
However, the rich seek work opportunities to join companies and organizations to develop a variety of skills that would help achieve their longer term goals.
Kiyosaki would explain how the main skills needed for to achieve success were:
- Managing cash flows
- Managing systems + people
- Communication (Speaking, reading, writing)
What can WE do from here?
It is never too late to begin building up your wealth. Utilizing these six principles as a guideline as opposed to a step by step instruction manual, will be able to spark ideas ways to helping you on your path in life!
If you would like to give Robert Kiyosaki’s Rich Dad Poor Dad a read while supporting the blog feel free to click below:
Sources for this post:
#2: Kiyosaki, Robert T. Rich Dad, Poor Dad: What the Rich Teach Their Kids about Money– That the Poor and Middle Class Do Not! Plata Publishing, 2017.
