Growing up, Robert T. Kiyosaki was never the richest kid in town. He often felt like an outsider for lacking the luxuries others took for granted. His biggest dream? To become rich. Today, he has accumulated a net worth of around $100 million.
How did he do it? His secret lies in the education he got from his “rich dad” – a friend’s wealthy father who took Kiyosaki under his wing and taught him everything he knew. The lessons he learned from his rich dad were completely at odds with what he learned from both his own poor dad and traditional schooling.
The catch? Kiyosaki’s rich dad never finished schooling. He built his own empire by mastering business principles. On the other hand, Kiyosaki’s poor dad was a well-educated schoolteacher. Rich Dad Poor Dad makes one thing clear: wealth doesn’t come from formal education, specialization, or working harder. It comes from understanding a few fundamental rules–and playing smarter, not harder.
Rich Dad Poor Dad is the story of a young boy deciding which life to lead. Twenty-seven years later, the book remains a financial classic. So how did he do it?
1. Understand Liabilities and Assets
According to Rich Dad Poor Dad, one of the core distinctions between building wealth and losing wealth is knowing the difference between assets and liabilities.
- Assets: Things that put money in your pocket.
- Liabilities: Things that take money out of your pocket.
It seems like a simple concept, but unfortunately, it is common to classify assets and liabilities incorrectly. Kiyosaki believes one such thing is your house. Houses may be the single most valuable thing many people own – but it requires a flow of money for costs like property tax, repairs, and renovations. Their prices may even depreciate in value, leaving you with less than you started with.
After recognizing the difference between an asset and a liability, investors can begin accumulating assets – things like stocks, bonds, rental properties, and much more. Assets increase income, which can be reinvested into buying more assets. This is how Kiyosaki has turned thousands into millions.
2. Leverage the Power of Corporations
Kiyosaki believes that growing wealthy requires individuals to keep their taxes as low as they can – legally.
Fortunately for us, there are many ways this can be done. One such way is creating a corporation, which is taxed less heavily than an individual. Expenses can be bought with money before taxes rather than after. Cars, insurance, and other purchases can be used as company expenses. Over time, the money saved adds up and can be reinvested into assets.
Luckily, having a corporation doesn’t require hundreds of employees or large factories – it is just a legal document stating the legal entity exists.
He also highlights other tools such as Section 1031 of the Internal Revenue Code. This provision allows real estate investors to avoid being taxed on gains as they trade up in value. Rich Dad Poor Dad believes that you can become wealthy by understanding mechanisms to keep taxes low. At first, the gains may seem minimal. In the long run, it will compound.
3. Learn the Art of Management
If individuals can make much better burgers than McDonalds, why does McDonalds make much more money than them? This is one of the questions that Kiyosaki asks in his book. The key to success, Rich Dad Poor Dad says, does not lie inherently in talent. The key lies in being able to manage the following three important things well.
Management of cash flow: As described above, this includes buying assets and avoiding liabilities. Taking on some risk, too, may be a good option if you are financially secure enough. Kiyosaki even goes as far as to say that taking on debt, when done correctly, can result in large returns. Taking control of your money is the first step to financial freedom.
Management of systems: This includes learning business and tax systems to best equip yourself with the knowledge needed to accumulate wealth.
Management of people: Kiyosaki recommends surrounding yourself with more intelligent people without fear of being trampled on. It is a good way to learn and stretch yourself. The ideas and perspectives gained by others are powerful growth tools.
Conclusion
Rich Dad Poor Dad remains one of the most transformative finance books of the 20th century. It advocates that the key to gaining wealth lies in understanding a few simple principles. Its message? Work smarter, not harder.
While they teach core subjects such as math and reading, schools miss perhaps one of the most important topics: financial literacy. As a result, many students grow up working for money but not knowing how to make their money work for them. Rich Dad Poor Dad fills that gap, helping you shed some light on a critical subject that is often overlooked.
Note: A copy of Rich Dad Poor Dad can be bought here.
Margin Notes 