I hate the branding – “what the rich teach their kids about money that the poor and middle class do not!” – and there’s a sort of snobbish cult following around the book that I can’t stand. I have also read quite a bit of criticism that has left with an image that it just tells you to get big loans, buy lots of property and aggressively chase being rich while laughing at the stupidity of the poor folk.
But I keep hearing quotes from it that I actually really agree with. A few days ago I was listening to a podcast and heard the quote:
“It’s not how much money you make, it’s how much money you keep..”
Well, that makes sense and is pretty close to what I bang on about all the time. So I finally bit the bullet and cynically started reading.
But the more I read the more I found myself nodding along. I don’t agree with everything he says. I think he excuses away a lot of social responsibility and that his personal investment stories are unhelpful.
But that’s beside the point. Whether his anecdotes are true or not, the fundamental concepts and his way of thinking about money and work are spot on. He has basically put into better words a lot of the things I try and talk about on this blog. Concepts such as financial independence, passive income and early retirement.
Here are the main points I have taken away from Rich Dad Poor Dad.
Financial Literacy Is not Properly Taught At School
I couldn’t agree more. We are taught to save, but to save for what? Bigger, better and more stuff.
But we are never taught about investments. That those savings don’t need to be spent but can be put to work to earn more money.
And those investments can quite quickly grow to earn more than we can make from working.
Most people get stuck in a loop:
Swap your time for money in a job – save – buy something – start again
That’s a never ending loop that doesn’t depend on how much you earn. As you get promoted and bring in more money, you just increase your spending. Constantly resetting the net worth to zero, or less than zero with credit cards, mortgages and loans.
Kiyosaki says that people end up in this loop because they never learned ‘financial literacy’. He claims, and I agree, that everyone needs to learn financial literacy.
In fact, it is even more important if you’re not ‘materialistic’ or ‘don’t care about money’. Whether you like it or not, if you’re stuck in the above loop, then you are dependent on and a slave to money.
He defines wealth as the number of days you could survive at your current living standard if you lost your job today. If you can survive forever then you are financially independent. Unfortunately, most people, even those earning a fortune, couldn’t survive a month.
So how do you create wealth? In Rich Dad Poor Dad, Kiyosaki simplifies it by saying all you need to do is acquire assets and minimise liabilities.
Assets are anything that earns you money. Liabilities are anything that costs money.
Your Home Is Not An Asset
How many times have you heard people say that their home is their greatest investment?
A house and their employer’s pension is often the only investment that most people have. As soon as they have saved enough, they will upgrade to a bigger house.
Well by the Rich Dad Poor Dad definition, your home is not an asset and actually goes into the liabilities column. Living in a house costs you money and doesn’t earn you anything. Even if you don’t have a mortgage you are still paying for upkeep and taxes. The bigger house you have, the more it will cost.
We need shelter and to live somewhere. But don’t fool yourself into thinking that buying the biggest house you can is a good investment.
A house you have bought as an investment to rent out is an asset. A house you have bought to live in is not.
So if a house isn’t an investment what is?
Kiyosaki holds back from telling us what assets to buy (which is good because I disagree with a lot of his investments). But rather puts the focus on getting educated in investing and learning ‘the game’. He says your greatest asset is your mind and you should continually invest in improving it. Something else I agree with!
He personally has made most of his money from investment properties and small cap stocks and shares, but doesn’t say that is the only or best way. The important thing is to make sure that you are minimising your liabilities, growing your assets and learning financial literacy.
Actually, that’s not the most important thing. The most important thing is to:
Take Responsibility For Your Financial Future
Despite being written 20 years ago, I believe this is even more important now than then.
I’ve been hearing it said more and more that by the time my peers and I reach retirement age, there won’t be a retirement age and there won’t be any state pension. Well if that’s what you believe, what are you going to do about it?
My Facebook feed is full of wailing at our dismal future and complaining that the government doesn’t care. But there is almost no personal planning for that future.
Regardless of your political point of view, you can’t bury your head in the sand. We need to accept the facts of life and adapt. If you believe there is a chance that you will soon be without a safety net from the government or employer then you better get to work building your own safety net.
We have very little control over what anyone else decides to do. Our boss, the government, our neighbours. But we do have a lot of control over how we choose to spend our time and money. The best thing you can do is get to work.
If you don’t know where to start then feel free to have a browse round this blog. Here are some more detailed articles to get you started:
In Summary: I Highly Recommend Rich Dad Poor Dad
There we have it. There is plenty more good stuff in Rich Dad Poor Dad and I recommend reading it. But if you can’t be bothered, here is my summary in three sentences:
- Take responsibility for your financial future.
- Learn how to invest and improve your financial education.
- Grow your money-making assets while shrinking your liabilities.