Rich Dad Poor Dad

Robert Kiyosaki

📚 GENRE: Business & Finance

📃 PAGES: 336

✅ COMPLETED: October 1, 2020

🧐 RATING: ⭐⭐⭐⭐⭐

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Short Summary

In Rich Dad Poor Dad, Robert Kiyosaki explains how two men critical to his upbringing shaped his thoughts about money and investing. The book explains the fundamentals and strategies of personal finance and money management. 

Key Takeaways

1️⃣ Buy Assets — Make sure you are taking a portion of your paycheck and investing it in income-generating assets that will help you build wealth. Whether it’s stocks, bonds, real estate, or anything else, put your money to work. This is how you reach financial independence.

2️⃣ Improve Your Financial IQ — Learn the basics of accounting and how to read financial statements. Knowing how to read financial statements will help you manage your own money and evaluate companies to invest in. 

3️⃣ Invest In Education — Commit yourself to lifelong learning. Read books, listen to podcasts, watch educational YouTube videos, learn a new language —  whatever you choose, make sure you are working on your skills and improving your knowledge. Have a thirst for learning.

Favorite Quote

"If you realize that you're the problem, then you can change yourself, learn something and grow wiser. Don't blame other people for your problems."

Book Notes 📑

Chapter 1

  • Financially savvy people make money work for them. They don’t work for money.
  • The average person goes to work, pays the bills, goes home. Repeat.
    • When they get a raise, their spending just increases. You don’t want to do this.
  • Fear keeps people in the same pattern. They don’t want to be without money.
    • This fear keeps them at the same job doing the same things.
  • You’re at the mercy of money if you don’t know how to command it and use it correctly.
  • Quote: “If you realize that you’re the problem, then you can change yourself, learn something and grow wiser. Don’t blame other people for your problems.”
  • You need to be a lifelong learner. The end of schooling is just the beginning in reality.
  • You can’t allow the emotions of fear and desire to control your thinking when it comes to your finances.
    • Don’t let money run your life. Harness the power of money. Don’t let money run you.
  • A job is just a short-term solution to a long-term problem.

Chapter 2

  • It’s not how much money you make, it’s how much money you keep.
  • Your greatest wealth is your education, not your money.
    • Always be learning. Always be developing yourself. Try to improve and become more knowledgeable every day.
  • If you want to be financially independent, you must be financially literate.
  • Rule No. 1 — You must know the difference between an asset and a liability. You must then buy assets.
    • Financially independent people buy assets. The middle class and those that struggle buy liabilities that they think are assets.
      • Asset — Something that puts money in your pocket. Something that creates income for you.
        • Ex. Real Estate, Stocks
      • Liability — Something that takes money out of your pocket.
        • Ex. Car
      • Buy assets!
    • Be able to read and understand numbers. Numbers tell you a story.
    • Understand cash flow and where your money is going.
  • Taxes are everyone’s biggest expense. 
  • Quote: “Money doesn’t solve problems, intelligence does.”
  • Buying a home is not always great. It’s a liability, not an asset, usually.
    • All the taxes and other expenses related to the house drain your bank account, which prevents you from investing in assets.
  • Keep liabilities to a minimum and pour money into income-generating assets, like the stock market and rental properties.
    • You want a lot of cash flow to be generated from your assets.
    • You want cash flow from your assets to cover your expenses.
    • Keep reinvesting income generated from your assets back into more assets. It all begins to compound and grow.

Chapter 3

  • McDonald’s — The world’s biggest owner of real estate.
    • CEO and founder Ray Kroc knew it was the total real estate under each McDonald’s franchise that was most valuable to his business model.
    • McDonald’s owns some of the most valuable properties located at some of the most valuable street corners in the world.
  • Don’t focus on your income number, focus on your assets (how much you are keeping and then investing in income generating assets.)
  • You need to have your own business. Your business is not your profession.
    • Your business is what you’re doing with your money and assets. Your business is deploying your money strategically in ways that produce passive income. 
  • Again, keep expenses and liabilities low and diligently build a solid group of income-generating assets.
  • What are some assets?:
    • Owned businesses that don’t require your presence
    • Stocks
    • Bonds
    • Real estate
    • Notes
    • Royalties
  • Invest in assets you love and are passionate about. This will help you do the research needed to make smart decisions with your capital. 
  • With real estate, start small and keep trading up to bigger properties.
    • Delay taxes by using the 1031 Exchange.
  • Small-cap stocks are worth investing in. These are a bit riskier, but usually provide the biggest rewards in the stock market.
  • Keep your day job, but always pay attention to how you are using your capital. 
  • Financially successful people buy luxury items last. People that struggle with money buy luxury items first.

Chapter 4

  • Originally, there were no taxes in England or the United States. During war times, the government would occasionally ask citizens to “chip in.”
    • In 1913, the 16th amendment initiated the first official income tax on Americans. At first, only the rich were taxed.
      • This is what allowed taxes to be passed in voting. The poor believed, through taxes, the rich were being punished and the taxes were helping them.
        • The problem was, the government got greedy. They soon began taxing the middle class.
        • Rich people also sought opportunity with corporations. They put their money into corporations, which are really just folders with some legal documents, and this sheltered their money from taxes.
        • Therefore, the rich avoided taxes and the middle class and below were taxed.
        • This works because corporations are taxed at rates below regular individual income tax rates.
  • With corporations, certain expenses can be paid for with pretax dollars. So they could therefore deduct their gross income and get taxed less.
  • When you work, you work for the company, then the government via taxes, then your banker if you have a home loan.
    • The average working American works five or six months for the government just to cover their yearly taxes.
  • Financial IQ involves:
    • Accounting
    • Investing
    • Understanding supply and demand
    • The law
  • Employees earn, get taxed, then try to live off of what’s left for expenses.
    • Corporations earn, spend what they can on expenses, then get taxed on what’s left.
      • This is one of the best legal loopholes the rich use.
      • Ex. Your board meetings can be held in Hawaii, your car insurance can be paid for using pretax dollars in a corporation because they are considered corporate business expenses.

Chapter 5

  • Risky investments aren’t all that risky if you have the right financial IQ.
    • If you’re knowledgeable, smart, and careful, you can to some degree negate some of the risk.
    • Increasing your financial IQ doesn’t eliminate risk, but it does lower it because you know what you’re doing.
      • Improving your financial IQ also gives you more options because you have the knowledge to take advantage of many different things.
  • Kiyosaki primarily invests in real estate and stocks. Real estate is stable, produces cash flow and appreciation.

Chapter 6

  • It’s not enough to be a hard worker. You have to also develop your skills and knowledge.
  • Selling is a core fundamental to success in life. You have to be able to sell yourself and your ideas to others. It’s a critical skill.
    • There is selling in all areas — products, spouse, kids, etc.
    • Practice selling! At the very least, your communication skills and ability to deal with rejection will improve.

Chapter 7

  • “Winners are on unafraid to lose.” — Fran Tarkenton
    • You can’t be afraid to lose money. You lose when you play it safe.
    • Go big!
  • Failure inspires winners. It doesn’t defeat them.
    • Winners know who they are, so failure doesn’t shake them. It inspires them to learn, get better, and grow.
  • Building your assets doesn’t take much. It does take a great attitude, guts, and an ability to not be defeated by failure.
  • A great property manager is critical in real estate investing.

Chapter 8

  • Don’t buy high. If a stock has gone up a lot, it’s not a good time to buy.
    • Find a different stock instead. As surfers say, “there will always be another wave.”
  • Always pay yourself first! When you get your check, put a percentage in your investing account right away. Then begin investing it strategically.

Chapter 9

  • Make a lot of offers when trying to buy real estate property.
    • Don’t be afraid to make offers. You might get turned down, but you also might get accepted.
  • When investing, profits are made in the buying, not in the selling.
    • This means your profits are really made by identifying good deals and buying at the right time and price. When you do this correctly, your investment has a great chance of producing. 

Chapter 10

  • The key to becoming financially independent is the ability to turn earned income (your job) into passive income (real estate) or portfolio income (stocks, bonds) as quickly as possible.
    • Taxes are highest on earned income. Taxes are the least on passive income.
    • The government taxes the money you work hard for more than the money you earn through passive income or portfolio income.