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Rich Dad Poor Dad by Robert Kiyosaki | Book Review

Okay, I know that this book has been out for a long time now. But I’ve just gotten around to reading it now. Since I’ve heard so many controversial things about it, I had to read it for myself and see what the fuss was all about.

With that said, before sharing my thoughts, it was not my intention to be either unfairly critical or kiss up to the author, but rather to offer as unbiased of an opinion as possible.

The book is divided into six lessons. I’ll pull some of the quotes that I found memorable, or that made me think in one way or another. Then I’ll write my thoughts and opinions below them.

Introduction: There is a Need

The only reason that I wanted to highlight the introduction was because of the very first sentence. It asks,

“Does school prepare children for the real world?”

In my opinion, the answer would be no. When I read or hear about people today who are in major credit card debt, or don’t have much saved for retirement, then I don’t think we’ve done a good job of being prepared for the real world. While in school, if we were taught concepts such as how to use credit responsibly, the power of compound interest, and the horrible impact of debt, I think we’d be a lot better prepared to face the real world.

Lesson 1: The Rich Don’t Work for Money

He says the poor and middle class work for money, while the rich have money work for them. He says its easier to work for money, because for many people fear keeps them at a job. I see some truth in that statement. Maybe it’s the fear of not paying the bills, not being able to eat, or not providing for your loved ones.  If I don’t love my job, or if I don’t go there with the mindset of serving others with my skills, then what is my main motivation? I would think that my job would just be a vehicle to pay bills.

“Learning how to have money work for you is a lifetime study. Most people go to college for four years, and their education ends.”

I agree with this, and interpret this to mean that getting rich is not easy. Otherwise, wouldn’t everyone be rich?

“…The fear of being without money motivates us to work hard, and then once  we get that paycheck, greed or desire start us thinking about all the wonderful things money can buy. The pattern is then set.”

I also see some truth in this statement. If we didn’t have money to meet our basic needs, we would live in fear. But once we do get a paycheck, a lot of times we think of material things to buy that we hope will satisfy us. Often, those things don’t satisfy us, and we keep the cycle going.

Lesson 2: Why Teach Financial Literacy

The main point that he stresses in this lesson is that if you want to be rich, you need to be financially literate.

“You must know the difference between an asset and a liability, and buy assets.”

He then goes on to define an asset and a liability.

“An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket.”

I love the simplicity of this advice. Fancy cars, while nice, depreciate the moment you drive them off the lot. Therefore, they’re not an asset.

He then argues that the rich see their home as a liability, while the poor see their house as an asset. I guess this is where things get controversial. Most people, myself included, where taught that a house is an asset because over time, home prices rise in value. However, since a home doesn’t generate income, but rather has expenses that include mortgage payments, property taxes, and insurance, he considers it a liability.

I have mixed feelings about this. Because for many people, home buying isn’t merely a financial purchase, but also an emotional purchase. To his credit, he acknowledges this and doesn’t expect people to agree with him.

And he argues,

“And when it comes to money, high emotions tend to lower financial intelligence.”

I wouldn’t necessarily agree with that statement. For some, the emotional benefits of buying a dream home may be worth making the financial sacrifice of taking on a mortgage and the other expenses. So if they’re committed to paying off the mortgage and it’s a conscious decision, then I don’t think their intelligence is lowered. After all, we all ultimately use our money to buy something don’t we?

But if you see some nice golf clubs that you like but can’t afford, and you purchase it on impulse with a credit card, then I agree that this is not a financially intelligent move.

Another point which I think people may find difficult to agree with is his definition of wealth.

“Wealth is a person’s ability to survive so many number of days forward… or if I stopped working today, how long could I survive?”

“Wealth is the measure of the cash flow from the asset column compared with the expense column.”

So if you have $2,000 of monthly expenses, and a cash flow of $1,000 per month from your assets, you’d have enough wealth to survive for half a month. Thus, he argues that when you achieve $2,000 in monthly cash flow, then you’ll be wealthy.

But how many people can generate $2,000 in income from their assets alone? If they owned property and rented it out, then perhaps this would be feasible. But I doubt that the average person has property to rent out, or is close to generating $2,000 a month from their assets.

I suppose this may be why people may have a hard time with his definition of wealth. In more traditional financial circles, a person’s wealth is measured by their net worth. This would include property such as your house and car. But since these things don’t generate income, they don’t fit in his definition of an asset.

However, I will say that his definition of wealth does make sense to me, and makes me want to strive to somehow build enough assets that generate enough income to cover my expenses.

Lesson 3: Mind Your Own Business

To become financially secure, we need to mind our business. He says that people struggle because they work for someone else, rather than owning their own business. They focus on their income, rather than their business, which revolves around assets. He encourages us to keep our days jobs, but to also buy assets, and reduce liabilities and expenses.

He also suggests buying assets that you love because if you don’t love it, you won’t take care of it. His love is real estate and small company stock. I’m not too knowledgeable in those areas, so I stick to index funds, which are an asset according to him, and which I do love.

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

This was a pretty short lesson. He suggests setting up a corporation for its tax advantages and protection from lawsuits. So if you have any kind of legitimate assets, he recommends looking more into the benefits of having one. This lesson wasn’t too informative or helpful to me, but I didn’t find anything that I strongly oppose.

Lesson 5: The Rich Invent Money

I didn’t get too much out of this chapter, other than his example of buying property in a down market for cheap and selling it for a gain. He reiterates the importance of building a strong financial foundation through building a financial education.

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

In this lesson, he advocates learning selling skills. He gives the example of McDonald’s and their hamburgers. Although they don’t make they best tasting burger, they make a lot of money because they know how to sell average hamburgers.

More and more, I’m seeing the importance of having selling skills. You sell yourself in many situations such as job interviews, work presentations, and companies need salespeople to sell their products. Heck, even girl scouts have methods to sell their cookies.

Final Thoughts

I will say that this is definitely NOT a book about finance and investing. If you’re looking for it to help you in those areas, you will be disappointed. It’s more of a motivational, self-help book. But overall, this book made me think, which is a good thing. It fires me up to learn more and try to be more entrepreneurial.  I also couldn’t help but think of the role that luck and fortune play in one’s financial destiny, like a great slots game. Some of us hit the jackpot through strategy, others by luck.

There may have been a few things I didn’t agree with, but I personally didn’t find this book too controversial. I just ignored the parts that I didn’t find helpful and took away the concepts that I did find useful.

What about you? Have you read this book? Do you have any strong opinions about it?

4 Responses to Rich Dad Poor Dad by Robert Kiyosaki | Book Review

  1. Neal says:

    Hey Darren, saw you over at Ryan’s blog and followed you here.

    I read this book and a few others in the series. It seems like they are a good thing for people who are unfamiliar with finances as I was a few years back.

    One of my friends read the book and all the stories annoyed him, since Kiyosaki makes a number of points several times.

    The first book is the beginning of the main three books that come as a package sometimes. The next is on cashflow and the third is on investing. His emphasis is on real estate, which will be more useful to some people.

    There are also an abundance of books under the ‘rich dad’ label. I liked some of them more than others…..

    Since finance isn’t taught in schools, the books seem like a good start.

    What would you recommend for the next steps beyond this level?

  2. Darren says:

    Cool, thanks for stopping by Neal! Ryan’s got a nice blog, and I’ve learned a few things from him.

    This book is not as deep in content as it is in motivation. I know about his other books, but don’t have the interest to read them at this point.

    As far as recommending more advanced books, I’m honored that you asked. Here are a few good ones.

    The Intelligent Investor – This was written by the guy who taught Warren Buffett.

    The Little Book of Common Sense Investing – This book simplifies investing down to a basic yet profitable way. You can also read my review of it first.

    These two should get you grounded with a solid foundation of financial knowledge. Let me know if you have any other questions. Hope it helps!

  3. Neal says:

    Hey Darren
    Thanks for the recommendations. I got The Intelligent Investor a few years back. It had been recommended by a few people and the endorsement by Buffet made it more appealing.

    Read a few by Peter Lynch and a couple others.

    But I was still in school and was accumulating debt rather than building up money to invest with.

    At what point in your life would you recommend starting to invest in stocks? One of my friends seems to be doing well, he also has a bit more to invest with.

    I figure I’ll pay off my student loans within maybe year and a half. The interest rate on them is about 5%. I kind of figured that the interest + inflation is about the return that I would earn on stocks if I was doing reasonably well. I also thought that it could be good to play around with stocks so I learn more about them beyond what I have read in books. That book you reviewed seems useful.

    What are your thoughts?

    I got Kiyosaki’s board games a little while ago, they’re fun and do a pretty good job of teaching about finances and in ’202′ about puts, calls, shortselling, etc.

    -Neal

  4. Darren says:

    Neal, I don’t invest in much in individual stocks because doing this successfully takes lots of time and work. It can be equated to being a full-time job or business.

    I look at it like this: Most professional money managers can’t beat the S&P 500 on a consistent basis. So if they have a hard time doing it with all the resources they have, then it would be even harder for me.

    But if you absolutely want to invest in individual stocks, I would start with small amounts of money that you don’t need for at least 10 years. Don’t put all your money into individual stocks at one time.

    Another option is to just practice by researching stocks, find some, but don’t buy them. That way, you can “play around” with them without risking your money. Follow them for a year, and see if you’re comfortable with all the ups and downs. If you are, then consider putting in real money.

    Since you have The Intelligent Investor, if you really want to dig deeper into investing, Security Analysis is another book by Benjamin Graham. Warren Buffett has good things to say about this book too. It’s a thick and pretty complex book though. I have it, but haven’t finished it yet.

    Either way, I would focus on paying off debt first, as you’re already doing. Good luck!

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