Rich Dad Poor Dad: Summary
The book 'Rich dad Poor dad' has been written by Robert Kiyosaki, a Japanese American. More than 41 million copies of this book have been sold worldwide in over 51 languages.
Robert was born in Hawai(USA) in a small family. His father holds a Ph.D. and has a decent job but still, Robert calls his own dad as Poor Dad. Why? Because his father always says "To earn money, we need to study hard and we must do a job".
Robert introduces a friend named Mike. Mike's father was a businessman. Robert calls him as Rich Dad. Because he teaches "How money works for us". Even though he doesn't have a proper education, he earned a lot that's why Robert follows Rich dad's path.
Robert says "If you earn more, you tend to spend more but you cannot become rich". This article explains how to become a rich person and how to make money work for us so read it completely. The key takeaways from this book have been categorized into 6 lessons which are as follows:
Lesson No. 1: Rich don't work for money.
Even though Robert & Mike came from poor & middle-class families they studied in a private school where rich kids also study. Robert & Mike understood that they were poor by seeing the clothes & things of Rich Kids. They decided firmly to become rich.
Robert asked his father "How to become rich?"
Poor dad said, "Use your Brain".
They didn't understand what poor dad said.
Now they went to ask the Rich dad the same question. Rich dad said, " I know the answer but I will teach it through work". He hired them in his supermarket to work for 2 days a week and offered to give 10 cents as wages.
After two weeks, Robert vexed with the work & went to Rich dad. The Rich dad gave a smile and said: "People who work for wages are the same as you. They satisfy with promotions and salary hikes. They think their problems get solved with these. But the main problem is the lack of knowledge in Finance". Rich dad increased Robert's wages to $2 and gave him a suggestion that "Start an organization or business along with your current job. That organization must become your asset and through that asset, you should get income".
Robert still had some doubts. One day when he was thinking about it, he saw a lady named Martin who works in a supermarket throwing Comic Books. Robert loves Comic Books. He asked Martin to give those books to him. He took an empty room in Mike's house and turned that into a library. He appointed Mike's sister as the librarian and asked her to collect 10 cents from the kids whoever comes to that library to read books.
In this manner, Robert implemented his first lesson. Now Robert understood that the rich don't work for money but money works for them.
Lesson No. 2: Why teach financial literacy?
We often see rich people becoming poor without proper money management. Michael Jackson, Arthur Cotton, Steel Company owner Charles Schwab comes under this category. The reason for this is the lack of financial literacy. To construct a house we need a strong foundation. In the same way, to become rich we need sound financial literacy.
Now let us see what is financial literacy. To understand it, we need to know the concept of:
Income and Expenses are a part of the Profit and Loss Statement whereas Assets & Liabilities are components of the Balance Sheet.
Income means your salary.
Expenses mean your daily spending.
Asset means "The item which generates income". House is an asset that generates rental income.
Liability means obligations or loans. If you buy anything, then the money you pay to buy it becomes your liability. The loan installment of your car is also a Liability.
Now let's see how the cash flows differ in Poor, Middle-class, and Rich families.
Poor people spend the salary for their daily expenses, clothes, food, movies, etc., By the month-end, their money flows from the Income box to the Expense box. These people can't live without a job.
Middle-class families money flows from the Income box to the Expense box & Liability box. Their salary is used for daily expenses, Taxes, EMI's, Credit card bills. They can live without a job with their savings for some time. But even if their salary increase, they will not get rid of their financial problems and at times they are also the same as poor families.
Finally, let's see Rich people's cash flow They invest their salary in Stock markets or Real estate or Bonds, or any Business. Then they get returns in the form of Dividends, Rent, or Interest. They will fulfill their needs with that income they can live happily even without a job.
In this whole story, poor dad treated his house as an Asset but Rich dad asks us to treat it as a liability why because we have to pay EMI. In this way, the Rich becomes Richer poor becomes poorer. This is called Financial Literacy.
Lesson No. 3: Mind your own business
Do you fee that the company you are working in is your own company? If you feel like that then nothing will be left for you. If you look back you will see the whole life working for your boss but not for yourself. Robert gave here one beautiful example: McDonald's owner Ray Kroc says I am not doing Hamburger business, I am doing Real Estate. Mc Donalds Purchases land and set up a franchise and give it to lease. Along with the Hamburger sales revenue, they also generate Rental income. From total revenue, they get 80% only from Rent. So here Robert says Along with your job earn some assets such as Stocks, Bonds, Mutual Funds, Patents, or any other Income-generating assets. This is the secret of the Rich people.
Lesson No. 4: The History of Taxes & The Power of Corporations
Now let's see how the tax system was started. Once upon a time, there were wars between different countries. At that time due to lack of sufficient funds kings asked people to donate some money. In the 1799-1816 war - Britan and in 1861-1865 war - America collected taxes. Later they brought the Income Tax act. Mostly middle-class families suffer from this tax system. Poor people won't have Income so they won't pay any tax. Rich people have businesses and companies. So they can set off their income with expenses to save tax.
Now let's discuss the power of a corporation. Corporation means one organization or one company. If you start a company, you can set off expenses such as travelling, Car maintenance, Insurance, etc., with business income to pay lesser taxes. One more way rich people use to reduce tax is whenever they sell an asset such as land, building they invest the capital gains in govt. schemes to save tax. Robert Says every businessman should be aware of Accounting, Investing, Marketing & Law.
Lesson No. 5: The Rich invent Money
Robert created a game called "Cash Flow". There are 2 paths in that game. One path which is outside called Fast Track. Another path that is inside called Rat Race. The game is about the Rat which was in the inner path should come to the outer path(Fast Track). Some people study hard, get a job, and works for their boss. Robert symbolically calls them as "People struck in Rat Race". To come out of this Rat Race there is only one way "To become aware of Money, Accounting & Investing". Along with that people should know these 3 points to become rich.
1. Identify Opportunities
Robert always searches for cheap houses for sale. One day he saw the Board "House for Sale". The board was there for a long time. The owner of that house was desperate to sell that house at any cost. Robert discussed with him and bought that house for 20,000$ less than the actual cost. After a few years when the price increases, he sold it for double the rate. In that way, we should find opportunities.
2. Learn to Invent Money.
Before starting any work, people complain that they don't have money. Bank will not give us loans. For this Robert did one thing. Once he found a deal of 20 lakhs apartment selling for 12 lakhs only. But Robert didn't have any penny. Robert borrowed 1 lakh and paid advance. He made an agreement to pay the balance amount in 90 days. Robert explained the deal to the person from whom he borrowed 1 lakh. That person liked that deal. Now Robert gave that house to that person. That person gave 50,000$ as commission to Robert for showing a good deal.
Robert says "Investing means not just investing money, it means gaining knowledge on Finance."
3. Take the suggestions of Financial Experts. Give them a good commission. Then only they come up with good ideas.
By following these 3 points you can easily invent money.
Lesson No. 6: Work to learn - don't work for money.
Everyone in schools, colleges, workplaces tells one thing "Gain specialization in any one field". That means improving more skills in your field. Poor dad also tells the same thing to Robert Poor dad says "Know more about less things. "Rich dad says "know less about more things". Robert says JOB means Just Over Broke that means you won't get anything from Job. Working under a boss for lifelong is like Rat Race. How much you increase your skills in one field, you will depend that much on that particular field only. A cricketer after retiring cannot actively work in another field. Many big companies hire students from business schools and train them to lead a company in the future by shifting constantly from one department to another. The same way rich people also train their kids to gain different fields.
Finally, to become successful in life remember these 3 things:
i) Cash Flow Management
ii) Dealing with people
iii) Time Management, Sales & Marketing
Robert Says "If you master these 3 things money will flow to you automatically".
Lesson No. 7: Avoid these 5 things
Till now we have seen 6 lessons. Now Robert asks us to get rid of these 5 things which stop us from obtaining financial freedom.
1. Fear of losing money.
2. Remove Jealous & Negative Thoughts. Never be jealous of other persons and don't think about your company getting bankrupt.
3. Sharp your brain. Never to say "I can't buy this" instead say "How can I buy this?"
4. Pay yourself first. First, start spending on yourselves later pay your loans and bill. Roberts says "If you pay yourself first, then the pressure starts building upon you to earn money".
5. Update your knowledge. Never be Ignorant. Know about money through Books and Seminars.
Before concluding his book, Robert gave some Personal suggestions:
1. Know the reason why you have started? Why you have to do that? What do you want?
2. Make friendships with rich people to gain knowledge of money.
3. Follow one principle after another
4. Help Others. Don't say "I will donate when I have money". The Law is "Give money Receive Money".
5. Make some rich person as you Role Model and inspire from them
6. Start working now.
If you follow all these you will learn to know that making money is easier.
To read the complete book, click here: https://amzn.to/3knqVDo