Book Summary: Rich Dad Poor Dad by Robert Kiyosaki

A book summary of the key ideas from Rich Dad Poor Dad by Robert Kiyosaki, along with informal notes and my favourite quotations.

The Book in a Nutshell

Growing up, Robert Kiyosaki had a rich dad (his best friend’s dad) and a poor dad (his real dad). His poor dad did everything the way most of us are taught to do it. He got an education at university, he secured a stable, well-paid job, worked hard, got a mortgage, and so on. His rich dad, on the other hand, didn’t follow the usual path. He started small and focused on building income-generating assets, he used legal corporations to reduce his tax liability, he paid himself first. In Rich Dad Poor Dad, Kiyosaki outlines the key lessons he learnt from his rich dad so he could avoid his poor dad’s financial fate. The book has become one of the best-selling personal finance books in history.

Book Summary: The Key Ideas

#1: The rich don’t work for money. Working for a company is a short-term solution to a long-term problem. The rich recognise that by investing in income-generating assets, we can have money work for us instead of working for money.

#2: Your home isn’t an asset. An asset creates income and a liability creates expenses. Your home is therefore not an asset. The rich recognise this early on, building a portfolio of real assets rather than committing all their income to the trap of increasing mortgages on a home.

#3: The rich outsmart the government. While the aim is often for the richest to support the poorest through taxes, this is rarely realised. In reality, the middle class absorb the biggest tax burden while the richest use corporations to outsmart the government on taxes.

#4: The rich invent money. In the real world, self-confidence matters far more than university grades. The rich combine financial IQ and courage to take advantage of the latest opportunities in the world.

#5: The rich use fear and desire to their advantage. But even the financially literate can stop themselves from getting rich. The rich overcome fear, laziness, cynicism, bad habits and arrogance on their way to wealth.

Book Notes: The Key Ideas in Detail

The below are more detailed notes on the key ideas from Rich Dad Poor Dad by Robert Kiyosaki, along with some quotations that caught my eye. These notes do not by any means cover the full breadth of the book. They are instead intended to serve as an introduction to some of the key ideas, from which to decide whether the book is worth further attention.

Key Idea #1: The Rich Don’t Work for Money

Get educated, find a safe, secure job and make money from a big company. This is the path we’re educated into following as a safe route to economic security and comfort.

But the rich follow a different path. Instead of working for money, they learn how money works so they can make it work for them.

“The poor and the middle-class work for money. The rich have money work for them.”

The reason so many of us choose to work for a company for money is because fear is our leading emotion. Many let money worries control their emotions and their souls. To avoid the traps of fear and desire, we must use them in our favour:

“Learn to use your emotions to think, not think with your emotions.”

The rich flip the internal script. Instead of just getting up and going to work because not paying your bills is scaring you, they ask themselves if working harder is really the best solution. As Kiyosaki puts it, “A job is only a short-term solution to a long-term problem.”

Key Idea #2: Your Home Isn’t an Asset

If you want sustainable riches, the first thing you need to do is build the foundations through financial education. Perhaps the most important principle here is understanding the true definition of an asset.

Kiyosaki gives assets a simple defining rule: Assets create income; liabilities create expenses.

By definition, then, your home is a liability, not an asset, because it creates an expense, not an income.

In most families, hard work to get ahead is just rechannelled into acquiring liabilities instead of assets. The rich, however, focus on acquiring assets. They recognise the power of income generation from investment. They recognise that their money can work for them to break the chain of working for money.

“It’s not how much money you make. It’s how much money you keep.”

This is a critical issue because you will come across many highly educated but financially illiterate people. The result of their high education but financial illiteracy is that they fall into the conventional spiral. They buy a house which is too expensive, instead of starting an investment portfolio. In turn, they lose time, additional capital, and even financial education. The opportunity costs are substantial.

“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.”

The pattern of treating a home as an investment is the foundation of our debt-ridden society because it creates a spiral of increasing liabilities as we upscale.

But the truth is that as an employee and a homeowner with a mortgage, you work for the company, you work for the government (through taxes), and you work for the bank (through interest).

“The rich focus on their asset columns while everyone else focuses on their income statements.”

The simplest way to riches is to keep expenses low, reduce liabilities and build a solid base of assets. Kiyosaki defines real assets as businesses that don’t require your presence, stocks, bonds, income-generating real estate, royalties, and any other passive income-generating investments.

Key Idea #3: The Rich Outsmart the Government

It’s not the rich who pay for the poor; it’s the educated upper middle class. Through corporations, the rich have essentially outsmarted governments on taxes.

In turn, governments have chosen to levy taxes on the middle class to support the poorest. The idea of taxing the richest to support the poorest has backfired, leaving the middle-class to foot the bill.

To outsmart the government like the rich, we need to develop what Kiyosaki calls our “Financial IQ”. In Kiyosaki’s definition, Financial IQ consists of accounting, investing, market and legal knowledge.

Part of this equation is understanding the tax benefits of corporations and the various tax loopholes in our systems. We need to get out of the mindset which accepts working for the government.

There is a simple distinction here. Employees working for corporations earn first, pay taxes second and spend last. Business owners with corporations earn first, spend second and pay taxes last. This allows the latter to manage their tax liability and pay themselves first.

Key Idea #4: The Rich Invent Money

In the real world, self-confidence matters far more than university grades. Most people fall into the work hard, save, and borrow model. But the rich see opportunities and are willing to take calculated risks to have their money work for them.

“Often in the real world it’s not the smart that get ahead, but the bold.”

The rich invent money. They invest in their financial intelligence to make conscious choices to move boldly forward rather than be left behind with the masses.

As technology continues to rapidly progress, there will be more opportunities to invent money than ever before. But we need courage to do so.

“Your financial genius requires both technical knowledge as well as courage.”

The more you develop your financial intelligence, the more opportunities are presented to you. That’s why we should always pursue work that will help us learn more and diversify our knowledge.

“Seek work for what you will learn more than what you will earn.”

Look at the skills you gain from jobs for the long-term gain rather than taking a narrow focus that leaves you trapped in the rat race. Build diverse skills and avoid the trap of paid specialisation.

Develop the 3 main management skills: management of cash flow, systems, and people.

Key Idea #5: The Rich Use Fear and Desire to Their Advantage

Financial literacy and technical knowledge still may not be enough without properly managing our emotions.

According to Kiyosaki, there are five main reasons why even financially literate people may not grow their assets:

#1: Fear: To most the pain of losing money is greater than the joy of being rich. To overcome this imbalance, we must accept and embrace failure as part of the journey. Kiyosaki also suggests starting young to combat against loss aversion.

“The primary difference between a rich person and a poor person is how they manage fear.”

#2: Cynicism: Savvy investors know that bad times are generally the best times to invest and make money. They know how to pull the trigger when everyone else is too afraid to act. Don’t let cynicism and doom mongering get in the way of financial progress.

“When it comes to money, high emotions tend to lower financial intelligence.”

#3: Laziness: Don’t tell yourself “I can’t afford it.” Ask yourself “how can I afford it?” Most allow their fixed mindset to dominate their personal finance habits. Adopt a growth mindset.

#4: Bad habits: Get out of the habit of paying yourself last. Pay yourself first. In difficult times, this approach forces us to think of innovative ways of fulfilling our financial commitments to others.

#5: Arrogance: Identify your gaps and educate yourself. Be open to new ideas. Expose your existing ideas to scrutiny.

You can buy the book here. Or for further related reading, try The Intelligent Investor by Benjamin Graham or How to Own the World by Andrew Craig.

You can find more book notes here.

Share this post

Share on twitter
Share on facebook
Share on linkedin
Share on pinterest
Share on email

Get More Book Summaries Straight to Your Inbox

Sign up to the weekly newsletter and never miss a post again.