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- The author, Robert Kiyosaki, had two fathers: 1) his biological – poor – dad, who worked diligently, saved nothing and consumed his salary month in and month out; and 2) his rich dad, who was Robert’s best friend’s father and businessman. The landmark difference was that poor dad worked for money whereas money worked for rich dad.
- The wealthy often own an array of assets, e.g. properties, stocks and bonds that work for them. The poor and middleclass have liabilities, which they believe are assets.
- Robert believes all should have a profession and a business. The former is your day job; the latter is the assets, which generate a passive income for you.
- Regard your personal finances as it was a business’, You Inc. Compose an income statement and balance sheet, keep a keen eye on your cash-flows etc.
In Rich Dad Poor Dad, Robert Kiyosaki outlines “what the rich teaches their kids that the poor and middleclass do not.” He learned these lessons by having had two fathers: 1) his biological – poor – dad, who was a teacher; and 2) his rich dad, who was Robert’s best friend’s father and a businessman. Poor dad diligently went to work every day, yet saved nothing and consumed his salary month in and month out. Rich dad on the other hand didn’t work for money; money worked for him. He built an array of businesses, all of which earned money for him. The book is essentially a lexicon of the financial lessons Robert learned from his rich dad.
Let money work for you
As mentioned, it’s well known that the rich owns an ocean of assets, e.g. properties, stocks, bonds, precious metals etc. ‘The poor’ have liabilities, which they believe are assets. The classic example is one’s home. For a lot of people, one’s home is life’s biggest investment and ‘the poor’ regard it as their most valuable asset. However, it’s only the equity in one’s home that can be regarded as an asset. The rest is money you owe the bank; hence, it’s a liability, not an asset.
Robert believes that something can’t be regarded as an asset unless it generates a cash-flow or return for you, e.g. bond coupons, capital gains and dividends from stocks, rental income from properties etc.
Mind your own business
Robert distinguishes between having a profession and a business. The former is your day job, e.g. doctor, politician, renovation worker, cashier – whatever it might be. Your business, however, is what you’re doing ‘on the side’ that generates a passive income stream for you. Robert’s business is rental housing and acquiring stakes in start-ups prior to an IPO. Robert’s advice goes: Find your own business, cultivate your skills and soon you won’t be dependent on your profession.
Consume, then pay taxes
‘The poor’ pay their taxes, then consume. The rich consume, then pay their taxes. Robert highlights that most rich people set-up holding companies or businesses through which they buy cars and travels for pre-tax dollars. One’s car is a company car, and a vacation is a board meeting abroad. ‘The poor’, however, pay their taxes and if there’s money left at the end of the month, they can spoil themselves. I won’t condone Robert’s approach to the taxman – it may end in quite a reckoning.
Treat your personal finances as a company’s
Robert advises that you should regard your personal finances as a company’s. Compose an income statement, a balance sheet, keep a keen eye on your cash-flows, and build You Inc. He underscores repeatedly that you should focus on building and growing a solid asset column that can generate free cash-flow to further expansion of your asset column. In other words: Use the profits from your assets to buy more cash-generating assets.
It wasn’t an epochal book in my opinion. It was entertaining and had a few good points, but they’re pretty self-explanatory. However, if you’re an investing novice, you’ll probably find it helpful.
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