Rich Dad Poor Dad

Yuzo Makitani -

The Book in 3 Sentences

One can build wealth and avoid the pitfalls of middle class work mindset. Robert Kiyosaki gives advice on how to become rich through the teachings of his "rich dad" which is by:

  1. Buying assets instead of liabilities and using the profits from your assets to fund your expenses. Reinvest the excess cashflow back into assets.
  2. Working to learn instead of to earn. Build your financial intelligence (accounting, investing, markets, and law).
  3. Kiyosaki built his wealth by learning a money making formula, executing it, then moving on. He did this in real estate investments (buying, selling, and upscaling tax free), and through high risk high reward investments in the stock market.

Impressions

Overall, the book is a good read and teaches the importance of some key points which contradict what most are taught in school or by middle class parents:

  • Knowing little about many things, namely the management of cashflow, systems, and people - higher education traditionally puts emphasis on specializing and becoming employable
  • Working to learn instead of to earn - most people predominantly work to earn money to survive
  • Think big picture and economies of scale, such as finding people who want to buy slices of pie, buying the pie, then selling the slices to them

How I Discovered It

I discovered this book from a real estate podcast.

Who Should Read It?

This book is a good read for people of any age. The book will benefit young adults and those working a regular job the most. For young adults, it teaches them the mindset they should have to build wealth (a model on how cash should flow from income to assets to expenses). For workers, it gives them introduction and inspiration in how to go from being an employee (E) or self-employed (S) to an investor (I) or business owner (B), the latter two who can build wealth without linearly converting time into money.

How the Book Changed Me

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I am now planning on investing in real estate.
  • Kiyosaki's cashflow model really hammered home the importance of minimizing taxes by converting W2 income into asset income. The issue with W2 income is that expenses rise with income (more income = more taxes) and that it takes more of your time and effort to earn more.
  • While I have plenty of stocks, I do not have any real estate. Real estate can offer tax-deferred and tax-advantaged income, which stocks cannot outside of an IRA or 401k.
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The book has influenced me on pursuing a generalist degree over a specialist degree.
  • Kiyosaki showed that the greatest investment is in yourself. He also showed that the more specialized you become, the more you are trapped and dependent on the speciality.
  • I was thinking of pursuing a specialist masters like ML and data science. However I would now prefer to get a more generalist masters in CS.
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The book has influenced me on what jobs I should look for.
  • Instead of going further down my path and specializing in operations, supply chain, and manufacturing, I think it is better to go broad while young to build up different skills and learn different industries.
  • Now I would like to utilize my masters in CS to find a programming job, to learn information systems and how teams work in dev and dev-ops environments.

My Top 3 Quotes

"Most people work from January to May just for the government."
"The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets."
"All too often business schools train employees to become sophisticated bean-counters... All they think about is cutting costs and raising prices, which cause more problems. Bean-counting is important... but it, too, is not the whole picture."

Summary + Notes

Advice on finance:

  • Know the difference between an asset and a liability, and buy assets.
    • Simple rule: An asset puts money in your pocket. A liability takes money out of your pocket.
    • Examples of assets:
      • Real estate
      • Stocks, bonds
      • Notes (IOUs, tax lien certificates)
      • Royalties on intellectual property (music, scripts, patents)
  • Financial IQ is composed of:
    1. Accounting - make sense of financial statements to read the strengths and weaknesses of a business
    2. Investing - learn and execute formulas on how to make money with money
    3. Understanding markets - understand supply/demand and current emotions
    4. The law - understand tax advantages and protections provided to corporations
  • Majority of bankruptcies in the US are medical related

Advice on real estate:

  • Start small and keep trading up for bigger properties, delaying paying taxes on the gain (Section 1031)
  • Hold real estate for less than 7 years.

Advice on businesses:

  • Buy assets that you love. If you don't love it, you won't take care of it.
  • Get rich through corporations:
    • Buy expenses with pre-tax money
    • Pay less taxes on corporate income than individual income
  • Type two investor (investor who does not buy pre-packaged investments):
    1. Find an opportunity everyone else missed
    2. Raise money: tie up contracts between seller and buyer
    3. Organize smart people: hire those more intelligent than you
  • The main management skills needed for success:
    1. Management of cashflow
    2. Management of systems
    3. Management of people - become a leader able to lead specialized people. So get to know a little about a lot.
  • The main specialized skills needed for sucess:
    • Sales and marketing (communication)

Advice on education:

  • Mind your own business, not other's businesses.
  • Work to learn, don't work for money. Story of Kiyosaki's life:
    1. Went to merchant school to visit growing Asian countries, not to become a ship's officer
    2. Joined the marine corps not to learn how to fly, but to lead people
    3. Joined Xerox for the sales training program and overcoming shyness, not for the benefits
  • Look at what skill you want to learn before choosing a profession

General advice:

  • Greed is the cure for laziness
  • Busy people are often the most lazy - they are busy not taking care of their wealth or health
  • Instead of saying "I can't afford it," think "how can I afford it?"

Getting started:

  1. Find a strong reason to get wealthy
    • Do you want to work all your life?
    • Do you want to travel the world and live a lifestyle you choose while you are young?
  2. Invest in your education
  3. Choose friends who can provide you information to get rich
  4. Master then execute a money making formula, then move on to the next
  5. Exercise self-discipline in paying yourself first
  6. Pay your brokers well - good advice and good information is worth it
  7. Get something for nothing - ask "how fast do I get my money back" when reading a deal
  8. Use assets to buy luxuries
  9. Pick a hero you can admire
  10. Give and you will receive - give what you need, give a smile, teach making money to someone else, and you will receive all of them back tenfold

To-do list:

  1. Stop doing what you're doing - step back and assess
  2. Look for new ideas - buy how-to books on money making formulas even if you know nothing about it
  3. Learn from those who have already achieved what you want to achieve
  4. Take courses, attend seminars, and read constantly. Then act on that information. If you fail, learn from that mistake.
  5. Make lots of offers. The negotiation starts later.
    • Make offers with escape clauses.
  6. Shop for bargains in all markets
  7. Look in the right places: shop at a foreclosure auction, not from a real estate broker who owns no property
  8. Find people who want slices of a pie, buy the whole pie, then slice it and sell them the slices
  9. Think big - pool resources to buy things for discount
  10. Learn from history - all companies start small
  11. Action always beats inaction