What is the core message of Rich Dad Poor Dad?
The core message of the book Rich Dad Poor Dad by Robert T. Kiyosaki is simple.
He posits that rich people acquire assets. While the poor and middle class acquire liabilities that they think are assets. For example, most of us consider our home to be our single biggest asset, when in fact, it sucks in money and doesn’t produce an income for us. In other words, an asset puts money in your pocket. A liability takes money out of your pocket.
How do the poor, middle-class and the rich handle money?
These simplified diagrams sufficiently put the message of the book across.
The basic idea is to generate enough income from your assets to cover your expenses with the balance reinvested into the asset column. The asset column continues to grow and, therefore, the income it produces grows with it. The result is that the rich get richer!
This idea is not revolutionary or novel and has been around before the author’s time, but nonetheless, for those that are not familiar with this idea. This book explains it in simple terms and can serve as a good introduction – his exaggerated claims of exploits notwithstanding.
So, how does a person go about acquiring assets?
The author quotes a man named R. Buckminster, “Wealth is a person’s ability to survive so many days forward—or, if I stopped working today, how long could I survive?”
Here he puts forth the idea recently made famous by the FIRE (Financial Independence, Retire Early) movement. Figure out how much your expenses are and then acquire enough assets to generate that much passive income for you.
If the income generated from your assets is equal to your living expenses, then you’re wealthy albeit not yet rich. If you are longer dependent on your salary/wages. You’re now financially independent.
For example, in Nepal’s context, if your annual expenses were say Rs 3 Lakh, then theoretically you’d need around 60 Lakh and then you can just live off the interest rate assuming you get an interest rate of 5% p.a. This is a simple calculation and doesn’t take into account inflation, emergencies etc. nor factors in uncertainty.
Your next goal would be to have the excess cash flow from your assets reinvested into the asset column. The more money that goes into your asset column, the more your asset column grows. The more your assets grow, the more your cash flow grows. And as long as I keep your expenses less than the cash flow from these assets, you grow richer with more and more income from sources other than your physical labor.
How to get started?
This is the pertinent question and he somewhat briefly goes over some things you can do to get started. However, they’re lacking in prescriptive steps and are more focused on the principles.
Find a reason greater than reality: the power of spirit.
Make daily choices: the power of choice. Invest in your education. Most people simply buy investments rather than first investing in learning about investing.Invest in your education. Most people simply buy investments rather than first investing in learning about investing.
Choose friends carefully: the power of association.WARNING: Don’t listen to poor or frightened people. I have such friends, and while I love them dearly, they are the Chicken Littles of life. To them, when it comes to money, especially investments, it’s always, “The sky is falling! The sky is falling!” They can always tell you why something won’t work. The problem is that people listen to them. But people who blindly accept doom-and-gloom information are also Chicken Littles. As that old saying goes, “Birds of a feather flock together.”
Master a formula and then learn a new one: the power of learning quickly.If you’re tired of what you’re doing, or you’re not making enough, it’s simply a case of changing the formula via which you make money. Attend classes, courses, seminars.
Pay yourself first: the power of self-discipline.Don’t get into large debt positions that you have to pay for. Keep your expenses low. Build up assets first. Then buy the big house or nice car. Being stuck in the Rat Race is not intelligent.
Pay your brokers well: the power of good advice. Good information is priceless.Information is priceless. A good broker will provide good advice, make you money and educate you. So pay them well.
Be an Indian giver: the power of getting something for nothing.The sophisticated investor’s first question is: “How fast do I get my money back?”,
wise investors must look at more than ROI. They look at the assets they get for free once they get their money back. That is financial intelligence.
Use assets to buy luxuries: the power of focus.Don’t buy consumer items or luxuries on credit. Buy with cash generated by your assets.
Choose heroes: the power of myth.When it comes to investing, too many people make it sound hard. Instead, find heroes who make it look easy.
Teach and you shall receive: the power of giving.Whenever you feel short or in need of something, give what you want first and it will come back in buckets. That is true for money, a smile, love, or friendship.
Critique of Rich Dad Poor Dad
- Contrary to his claims, the character of Rich Dad is not real. Several researchers for various magazines have scoured the real estate records of Hawaii, and can’t find such a person. The character is said to have owned some of the best real estates on Waikiki Beach and is one of the richest men on the island of Hawaii.
- When asked, the author retorted with: “Is Harry Potter real? Why don’t you let Rich Dad be a myth, like Harry Potter?”
- He didn’t write the book alone. Sharon Lechter co-authored the book with Robert. He was sued by his fellow author in 2007 for not keeping to the terms of their agreement. They reached a settlement.
- Real estate experts have criticised his exaggerated claims. A lot of examples, anecdotes, experiences in the book are embellished, or it may not have happened to himself. There are tons of stories about how he funded some of his extravagant purchases which industry experts have repeatedly cited as wrong and/or misleading. It might be better for us to treat them as inspiring stories rather than advice. Instead, seek out books that are more practical in nature that include how-to-steps.
- He claims to have a net worth of more than $50-$100 million. But court records show that he earned no more than $9 million from his series of Rich Dad books.
- From 1990 to 1995, Kiyosaki used Amway to promote his book with multi-level marketing.
- This book is a sales pitch for his seminar, workshops, audiobook instead of an actual how-to. The books are an advertisement for his higher-priced seminars.
- His books make getting rich seem much easier than it really is and makes higher education sound much less valuable than it really is. It encourages people’s desire to get rich quick without effort or risk. There is no dearth of this fantasy peddling.
Is Rich Dad Poor Dad worth reading it?
- Yes. It can give readers a new perspective with which to look at their own personal finance. As a general principle or way of thought, it works but the book is rather light, almost non-existent on how-to-steps. It would be better if you read, books such as The Little Book of Common Sense Investing by John C. Bogle or The Intelligent Investor by Benjamin Graham which contain ideas, that this book falsely claims to have.
- The book is short enough that you can finish the book rather quickly and still get the core ideas. It has none of the technical terms or industry jargon. It is easy for almost anyone to pick up.
- The book was a best seller. If you want to be a best-selling author, tell people their wildest financial dreams can come true, with virtually no effort or risk. The list that is most respected is the backlist, not the best-seller list. The backlist is the list of books that sell year in and year out for decades. The Intelligent Investor is an example of a book on that list.
Rich Dad’s Best Quotes
The book has more one-liners than an 80s action movie, so here are some of Rich Dad’s best quotes.
You can find the book on Amazon.
I hope you enjoyed my review of the book Rich Dad Poor Dad. If you liked it, you may also like other reviews of finance books here.
Did I miss anything? What book on finance should I review next? Please feel free to leave your comments below.