Rich Dad Poor Dad Summary
Occasionally, I receive so much information on my desk that finding material to write about is a cinch.
On the other hand, I sometimes need help coming up with topics that would benefit you, so I reach out to other bloggers for help.
So recently, I did just that. I contacted blogging master Brandon Gaille, who originally helped me get this blog going, and he recommended that I take some of my best books and summarize them for a quick read.
Some of his recommendations that have become quite popular are:
- The 10X Rule
- The Richest Man In Babylon
- The Millionaire Next Door
- Everyday Millionaires
- The Millionaire Mind
- Die With Zero
- Influence – The Psychology of Persuasion
OK, that settled it. I set out to find a good book that would benefit you and found one that I had actually read several years ago.
My good friend over at ESI Money inspired me to dust off the cover of a book that author Robert Kiyosaki wrote called Rich Dad Poor Dad. His article, “Rich Dad’s Ten Steps to Getting Started on the Path to Wealth,” motivated me to reread it and summarize it.
If you want to learn what the book is about even quicker (in three sentences), here’s Sam Davie’s summary:
Rich Dad Poor Dad Summary
Where do we learn about money?
You’ve probably heard the phrase, “The rich get richer, and the poor get poorer.” Why is that? Partly, it’s because of how the system is set up.
Did you learn about money in school? Me neither. I didn’t even learn anything about it in college or dental school.
I added up the amount of education I’ve received, starting from kindergarten through completing a residency, and it came out to be a whopping 25 years!
During that time, I received zero education in money. Now that I think about it, it’s troubling, and I wonder why so many of us get out of student loan debt that cripples us.
Because we learn nothing about financial literacy in schools, we usually get it from our parents. Maybe that’s one of the reasons the above statement is true.
In his book, Kiyosaki also heard about the rich getting richer and the poor losing money growing up and wanted to share his story about what he learned about wealth.
Interestingly, he learned it from two people: his “rich dad,” who was his best friend’s dad, and his “poor dad,” who was his real father.
Rich Dad vs Poor Dad
My story and Kiyosaki’s are similar in that we both learned financial advice from our real dad and a friend’s dad.
His “poor dad” held a Ph.D. in education, and like many educated people working jobs to pay the bills, he still struggled with debt and money his entire career.
Kiyosaki’s “rich dad” was a successful business owner (one of the wealthiest in Hawaii) with only an eighth-grade education.
Growing up, he began noticing fundamental differences in his father figures.
He stated, “I noticed that my poor dad was poor, not because of the amount of money he earned, which was significant, but because of his thoughts and actions.“
I also think that too many doctors are poor, not because of our income, which is also substantial, but because of our scarcity vs. abundant mindset.
When I got out of training, I followed Dave Ramsey’s advice regarding paying off debt and then investing in a 401k until retirement. My view changed once I read Rich Dad Poor Dad.
Here are my thoughts on the two:
In the book, Kiyosaki shares six important lessons that he learned about building wealth over a thirty-year period from his rich dad.
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Sign up for my newsletter6 Lessons From Rich Dad
Lesson #1: It’s not how much money you make; it’s how much you keep.
This lesson reminded me of doctors and other high-income earners such as pro athletes. Both groups work hard to get enough money, and then some but never learn how to manage their money.
One of the most important statements in the book pertained to this lesson, “You must know the difference between an asset and a liability and buy assets. This is all you need to know if you want to be rich. It is rule number one. It is the only rule.”
He states that the rich buy assets, whereas the poor and middle class buy liabilities they THINK are assets. This is why the rich have financial success, and the poor continue to have money problems.
I’ve been discussing this with my kids since they were old enough to understand money. Whenever they ask to buy something, I ask them if it’s an asset or liability.
My oldest is getting ready to drive, and I wanted him to consider purchasing a car. Now, I understand that you NEED a car for transportation.
The point I’m trying to make with them is that a car is a LIABILITY and too many people are broke and stay broke because they don’t understand the difference.
Assets put money in our pockets, and liabilities take money out.
We want to invest to grow our wealth. We can do this by investing in things that produce income, appreciate, or do both.
He’s big into real estate investing, which provides cash flow and appreciates the longer you hold it.
As a side note, Kiyosaki states that acquiring more money won’t solve your financial problems if you don’t know how to manage it. It makes things worse.
He writes, “Money often makes obvious our tragic human flaws, putting a spotlight on what we don’t know. That is why, all too often, a person who comes into a sudden windfall of cash — let’s say an inheritance, a pay raise, or lottery winnings — soon returns to the same financial mess, if not worse, than the mess they were in before.”
Lesson #2: The poor and the middle-class work for money. The rich have money work for them.
Most reading this have a high-income job which means two things:
- We must work to get paid
- Taxes will continue to increase as income increases
Kiyosaki states in the book that he learned to put his money to work for him and enjoy tax benefits of generating income that does NOT come from a paycheck.
“If you work for money, you give the power to your employer,” Kiyosaki writes. “If money works for you, you keep the power and control it.”
Man, if I could have learned that early on in my career, I’d have reached financial independence in my 30’s.
In school, we’re taught to take the path of least resistance which is to work for money. This concept has taken a toll on me by limiting the amount of travel I can do with my family. I have a solo practice and have never been in the position to take off weeks/months at a time, and if I do, money is not coming in.
On the other hand, if I’d started investing in cash flowing investments, such as the syndications I’m in now, I’d have been able to take more time off as other streams of income would have been flowing.
Lesson #3: It’s not the smart who get ahead, but the bold.
The key quote regarding this lesson was, “Once we leave school, most of us know that it is not so much a matter of college degrees or good grades that count. In the real world, outside of academics, something more than just grades is required. I have heard it called many things: guts, chutzpah, balls, audacity, bravado, cunning, daring, tenacity, and brilliance. This factor, whatever it is labeled, ultimately decides one’s future much more than school grades do.”
Too bad I didn’t hear this before staying in school over 20 years!
Kiyosaki emphasizes the need to take risks while accumulating wealth, but also just as important as managing that risk in which education plays a role.
The key to intelligent risk is developing financial intelligence, Kiyosaki writes: “There is always risk. It is financial intelligence that improves the odds.”
He recommends reading up on accounting, investing, and the stock market as the first step to becoming more financially intelligent.
I work out at the local college and constantly encourage students to do this, as most are wasting their time on social media or watching YouTube videos.
Before you make any investment, make sure you’re completely educated on the entire process as well as the risks involved. Lack of financial education, teamed with the desire for quick riches, leads to disaster.
I loved this quote in the book about this subject: “Most people, in their drive to get rich, are trying to build an Empire State Building on a 6-inch slab.”
This sounds like what happened to me years ago when I jumped into real estate investing (and lost $50K) BEFORE I knew what I was doing.
I encourage anybody who completes their training to continue self-educating themselves by reading books on the topics they’re interested in.
Lesson #4: Corporations are the biggest secret of the rich.
In a nutshell, this lesson concerns the rich person’s knowledge of setting up corporations to lower their overall tax rate vs the individual (employee) who works for a corporation.
One of the main differences between the two entities is how corporations pay taxes.
Corporations
1. Earn
2. Spend
3. Pay Taxes
Many of the corporation’s expenses can be written off which in turn lowers taxes.
Employees who work for Corporations
1. Earn
2. Pay Taxes
3. Spend
As you can see from the above example, employees typically will pay more in taxes based on not being able to expense items they purchase.
Again, the author recommends people continue to boost their financial IQ, particularly in these four areas:
- Accounting – understanding the story behind the numbers
- Investing – money that creates more money
- Market forces – understanding supply and demand
- The law – know when something will give you a tax advantage
Lesson #5: The rich focus on their asset columns while everyone else focuses on their income statements.
The key quote in this lesson was: “Keep your daytime job but start buying real assets, not liabilities or personal effects that have no real value once you get them home. Keep expenses low, reduce liabilities, and diligently build a base of solid assets.”
I recently saw the video below from Grant Cardone recommending this EXACT advice.
Both Cardone and Kiyosaki recommend that we use money from our careers to invest in wealth-building assets and then let the passive income from the assets buy our liabilities.
Unfortunately, most people do the opposite.
“The long-term rich build their asset column first,” Kiyosaki writes. “Then the income generated from the asset column buys their luxuries. The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance.”
Join the Passive Investors CircleFrugality
Just like we’ve discussed in a previous article, the author recommends living a life of frugality and using money that would have been spent on expenses to invest instead.
This is one of the keys to wealth.
Speaking of wealth, he defines it as a person’s ability to survive so many days forward – or, if I stopped working today, how long could I survive?
Basically, his definition of wealth tells how close anyone is to reaching FI.
Lesson #6: People who avoid failure also avoid success.
Most successful people I know get to where they are in life because of their mistakes and failures they’ve made along the way.
Kiyosaki states, “Most people never win because they’re afraid of losing, or failing.”
“Yet if you look at the way humans are designed to learn, we learn by making mistakes,” he writes. “We learn to walk by falling down. If we never fell down, we would never walk. The same is true for learning to ride a bike … The same is true for getting rich … Failure is part of the process of success.”
The way that I think about money is similar to how I play tennis. I play hard and do the best someone over 40 can, make mistakes, correct mistakes and typically get better during the process.
If I lose again, I learn from the mistakes I made (whether they were a technique issue such as a topspin forehand) and continue to work to get better.
If I never played the game due to fear of losing/failing, then I’d NEVER get better.
Rich Dad Poor Dad Quotes
Here are a few quotes from the book that I thought was worth mentioning:
“Most people have a price. They have a price because of human emotions, such as fear and greed. First, the fear of being without money motivates us to work hard, and then once we get that paycheck, greed or desire starts us thinking about all the wonderful things money can buy. A pattern is then set: get up, go to work, pay bills, get up, go to work, pay bills… Their lives are then run forever by two emotions: fear and greed. Offer them more money, and they continue the cycle by also increasing their spending. This is what I call the Rat Race.”
“You’re only poor if you give up. The most important thing is that you did something. Most people only talk and dream of getting rich. You’ve done something.”
“I’d rather welcome change than cling to the past.”
“The love of money is the root of all evil.”
The lack of money is the root of all evil.”
“The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth in what seems to be an instant.”
“Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.”
“If you realize that you’re the problem, then you can change yourself, learn something and grow wiser. Don’t blame other people for your problems.”
“As I said, I wish I could say it was easy. It wasn’t, but it wasn’t hard either. But without a strong reason or purpose, anything in life is hard.”
Final Take
One of the most PROFOUND things I learned about was something he called the Cashflow Quadrant. This had to do with HOW we make money.
I’m sure you’re like me and never THINK about how you’re making money. I was taught to go find patients, treat them (well), then rinse and repeat (no pun intended 🙂 ).
Never once did I realize until some 15 years into private practice that if daddy ain’t working, momma ain’t getting paid.
Kiyosaki’s explanation of the Cashflow Quadrant is what made me realize that it was time to take action and focus on earning other streams of income (passive) instead of solely relying on active (earned) income.
Related article: The Cashflow Quadrant – How You Earn Money Matters
If this Rich Dad Poor Dad summary has inspired you to take the next step to financial freedom, consider joining the Passive Investors Circle where you’ll beginning to learn the steps to begin building multiple streams of passive income.
“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?”
Join the Passive Investors CircleFAQs
What is the primary difference between Robert T. Kiyosaki’s “Rich Dad” and his “Poor Dad” according to the Rich Dad Poor Dad summary?
The primary difference lies in their attitudes towards money, education, and work. Poor Dad, Robert’s biological father, believed in traditional education and a secure job as the pathway to success. He represents the conventional view that working hard, earning a good salary, and saving is the only way to financial security. Rich Dad, the father of Robert’s best friend Mike, believed in building wealth through owning businesses, investing in income-generating assets, and understanding financial statements like the balance sheet and income statement. He emphasizes that a person handles money and their financial knowledge is their most valuable asset.
How does Rich Dad Poor Dad emphasize the importance of understanding the history of taxes and the power of corporations?
The book provides a new perspective by explaining how the history of taxes and the establishment of corporations have been structured to benefit wealthy individuals and business owners. It suggests that the tax burden falls disproportionately on employees and the lower classes because they lack the financial knowledge and advantages that come with corporate structures. Rich Dad’s advice includes teaching financial literacy and utilizing the power of corporations to protect and enhance one’s financial situation, reducing the overall tax burden and increasing the potential for financial security.
According to Rich Dad Poor Dad, how can starting your own business and investing in real estate contribute to financial security?
The summary of Rich Dad Poor Dad highlights that starting your own business and investing in real estate are key strategies for building passive income streams and achieving financial freedom. These income-generating assets are crucial because they bring in money without requiring a direct exchange of time for dollars, unlike a traditional job. This shift from being an employee to becoming a successful entrepreneur or investor is essential for moving beyond financial struggle and securing long-term wealth.
What are the key takeaways from Rich Dad Poor Dad about personal finance and financial education?
Key takeaways include the importance of financial literacy over formal education alone, the significance of understanding financial statements for personal finance management, and the need to invest in oneself by acquiring income-generating assets for financial security. Robert T. Kiyosaki emphasizes that the education system often fails to teach financial literacy, leaving many talented people without the knowledge they need to achieve financial success. He suggests that learning how to manage money effectively, understanding the main management skills for wealth, and developing the right mindset are the most important specialized skills for escaping the cycle of financial struggle.
Why does Rich Dad Poor Dad argue that a good job and formal education are not enough for financial success?
The book argues that relying solely on a good job and formal education can lead to a cycle of financial struggle due to the lack of self-confidence in one’s financial intelligence and the inability to navigate the complex world of personal finance. It suggests that the primary reason many literate people, including those with higher education and good jobs, do not achieve financial freedom is their limited understanding of how money works and how to make it work for them. Rich Dad Poor Dad encourages readers to go beyond traditional education and secure job mindsets to explore real estate investment, business ownership, and other paths that have tremendous potential in the long run for building wealth and ensuring financial well-being.