Rich Dad Poor Dad

Go to school, work hard, get a good stable job. This advice was sanctified for generations. Rich Dad Poor Dad calls into question this advice. Robert Kiyosaki tells an embellished story of his childhood struggles in deciding who he wants to take advice from: his poor, but educated biological dad who worked hard, got a good stable job, but struggled financially or his “Rich dad” who is a friend’s father and despite not graduating from the 8th grade, created many successful businesses.

“You must know the difference between an asset and a liability, and buy assets…. Rich people acquire assets. Poor and middle class people acquire liabilities, but they think they are assets”

-Robert Kiyosaki, Rich Dad Poor Dad

I read this book for the first time in the 7th grade and from a young age it changed the way I thought about money. Wealthy people own assets that generate income. What is an asset? It depend who you ask. The poorer you get, the more likely your largest “assets” are actually liabilities. Take a car for example, some people consider a car an asset, they use it for transportation to and from work, and you can borrow money to buy it, much like a house. A car is a liability however, meaning, as Kiysaki would put it: “A liability is something that takes money out of your pocket.” Every month, a car takes money from you, with gas, insurance, maintenance, and depreciation, every month you own your car it is worth less than the month before. For a lot of young and poor people, a car is the most valuable thing they own. Worse, people feel the need to demonstrate their worth through how nice their car is. They buy new cars too often that they cant afford and go into debt to own them.

For the middle class, Kiyosaki makes the argument that buying a home is actually a liability, not an asset. Even though homes have historically appreciated in value, their rate of appreciation is only slightly greater than inflation. People often spend more money on their home than they would on a rental and the process of buying a home and obtaining a mortgage is expensive. Some of these costs are one time costs such as the fees charged by real estate agents and points and origination fees on mortgages. Over time, one can amortize (a fancy word for spread out) these costs over the period they own their home. So if you buy a home and own it for 30 years, your per year cost is much less than if you were to own the home for only 3 years. Unfortunately for most people in the middle class they do not own the same home for 30 years; their job forces them to move, they decide to have kids, or they decide they just need a bigger house, not mentioning the new flat screen every few years, the necessary man cave, and all the other toys one buys when they buy their home. When people move often, buy lots of unnecessary stuff for the home, and live above their means, it becomes apparent that for much of the middle class, owning a home is actually a liability, not an asset. Remember the golden rule: assets put money in your pocket, liabilities take money out of your pocket.

The rich, on the other hand buy assets: Stocks, bonds, investment properties etc. These assets put money into your pocket rather than take money out. Because they build up their assets first, their home, car, and toys make up a much smaller percent of their total net worth that that of a poor or middle class person.

What are some lessons we can all take away from this book? First, unless we are born into a large inheritance, our beginning income statement & balance sheet will look like the poor persons. We work for money and will have little left over. I think this is where the first crucial decision point comes into play. When we scrape together the little amount that is left over each month what will we do with it? Even if its only $50 or $100, we must decide to forgo our desire for instant gratification and consumption and instead buy assets, not liabilities. These assets will be small at first, and as our salary grows we must continue to buy assets, until we get to the point where our assets produce enough income to cover our expenses. At this point we will have escaped from the “rat race” as Kiyosaki would say because we no longer have to work for money, our money works for us.

Being older now than I was when I first read this book, I have realized that the educational system grossly ignores financial education. I even majored in finance, and yet I had to learn personal finance on my own. Schools should teach these topics to everyone, how else can we guarantee equality of opportunity? If I had it my way, personal finance topics would be introduced in middle school and advanced in high school. So long as it is not taught in schools the onus to learn more is put on us and in my view, this book is the first step in understanding how money works and more importantly how to make it work for you.

I have a passion for helping people understand personal finance and if you’d like to learn more, I’m working on summarizing the most important information into a page here, I will continue adding or adjusting as things change. (coming soon)

Max Bertman

About the author

Education shouldn't stop the second we finish school. Follow along as I continue my education through reading an hour or two a day. In my book reviews, I will try give a broad summary of the topics covered. I will also begin a discussion on some of the things that peak my interest. Continue the discussion with me in the comments. If you click the book reviews tab you will find all the reviews I have written and what I am currently reading; pick up a book and become smarter with me.

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