Hi friends, today I will tell you about a book named Rich dad poor dad written by Robert Kiyosaki and Sharon Lechter. This is one of the classical books for personal finance. Anyone interested in reading business books might have heard about this book.
Rich dad poor dad has been New York Times, Wall Street and US Today bestseller book. The book is written in a very simple language. Anyone can understand what is written in this book. But not everyone can interpret subtle messages inside this book.
That's why I am for. Let me start by giving you some examples. Robert Kiyosaki writes that rich people do not work for money. And that your net worth is not an accurate measure of your revenue. What is the definition of being wealthy? What are assets and liabilities? And number 1 skill to become wealthy. Such insightful questions will be answered in this blog post.
Though this is a personal finance book. It doesn't tell anything about how much to spend, save, invest and donate. And no one can tell you that. I have tried to tell you all this in another blog post,
The book, rich dad poor dad starts with a story in which is a high school kid asks his mother why should he waste his time learning those subjects that he is not going to apply in real-life situations?
He further supports his argument with some examples. Michael Jordan, Madonna, and the Harvard dropout Bill Gates.
Again he tells his mother that nowadays there is no security after getting jobs. Even college graduates get lesser and lesser income. Doctors nowadays don't earn as much as they used to earn.
His mother takes him to Robert Kiyosaki, the investor and teacher. To her surprise, Robert speaks the same thing. Robert calls it the rat race.
The Rat Race
After you finish your graduation you look for a job and aspire to be a doctor, lawyer, accountant, banker, or army man etc. You get a fixed salary to live on. You also pay taxes on this salary. Taxes like land tax, security tax etc. And you end up working for someone else your whole life. In other words, you work for money.
The same thing happens with your children. Thus it is a vicious cycle and called a rat race.
The Way Out
Robert starts telling his story by making up 2 dads as characters.
Poor dad: Robert's real dad, who was a headmaster in a school in Hawaii. Very secure and risk-averse. Never wanted to buy anything going out of the way.
Rich dad: friend's (Mike) dad, encourage everyone to aim big. Never afraid of taking risks. If he wanted to buy anything he would ask himself "how can I buy this", and finally he becomes able to buy it.
Robert had high hopes that his rich dad will teach him how to become rich.
6 Lessons From the Rich dad
Lesson 1: Rich people do not work for money.
It is very true! You may have seen many people chasing the money their entire life. Does it look like a deed of the rich?
Rich people are not under the control of money. Instead, they control the flow of their money. Most of the people aspire to make money due to the emotions of greed and fear.
Let me explain how greed and fear control you to work for money. Greed, when you want to buy things, spend recklessly and keep working for more money. Fear, when you imagine yourself without that job.
The way out? Do not start working for money until you get rid of the emotions of greed and fear.
You might have noticed one thing, the person who is doing a job does not get as successful as the person who does an unpaid internship. Why so? Because the person who does an unpaid internship, often does it only to learn something. He rises above the feeling of greed and fear.
Fun fact: if you want your employee being an employee forever then pay him well or he will find his way to start his own company.
Hold your horses! Does being rich ensure being happy? No. These 2 terms can be categorised as the opposite of each other. When you have more money you worry more about keeping it safe, thus it ceases your happiness. The way out? Keep donating.
The price hike is not a characteristic of sustainable economic development!
In the same lesson, Robert explains how price rises. It occurs out of the same reason of greed and fear. A doctor wants his family to get every luxury. So he raises the price of the treatment. Looking at him a lawyer also increases his fee. Thus it adversely affects the poor. Not everyone has enough money to take care of himself and his family. It creates a gap between the rich and the poor. Thus, it is not a sign of being a good economy.
Lesson 2: Why must young people learn about money?
You might have heard various rags to riches stories, likewise, there are many riches to rags stories. Robert gives such examples in his book. People like Charles Schwab, Samuel Insull, Howard Hopson, Leon Fraser, Richard Whitney, Arthur Cotton and Jesse Livermore, and Albert Fall, are some famous examples from history.
Why would such stories prevail if we gain some knowledge about money?
Robert says that the first step to learning about money is to learn about accounting.
And to learn about accounting, you need to have command on basic mathematics. Arithmetic is the key to that.
Step 2: You must have a clear understanding of the terms assets and liabilities. You will have more clarity of these terms when I teach you about cash flow, and how it works.
Simply look at the picture below. The arrow shows cash flow. Keep looking at the picture, you will understand everything by yourself.
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| CashFlow Diagram |
Robert explains in this lesson that nowadays children do not want to become a doctor or a teacher but, they want to become a basketball star, a golfer like Tiger Woods, movie star etc. Because today, both wealth and fame are at these places only.
Though there are some things given in this chapter that I don't agree with Robert Kiyosaki, like when he says debts are good. I don't agree with it at all.
The definition of being wealthy
While teaching the difference between being wealthy and being rich, Robert says that the two terms are different from each other. While being rich means having excess money, wealthy means having the exact money to sustain your life. In other words, when your income is equal to your expenses, it means that you are wealthy, but not rich.
Lesson 3: Mind Your own Business
The message is very short, but it carries a deep meaning within it. Minding your own business simply means having a dream and working on it.
In the same lesson, Robert teaches about why net worth is not an accurate measurement of your wealth. It is because when you start selling your properties you have to pay tax on it. Meaning that all the money you get after selling is not yours to keep.
How does Robert Kiyosaki invest in real estate without paying taxes?
The strategy that Robert follows while investing in real estate is he starts with investing in small properties, then he sells those and buys big properties. Hence, he doesn't have to pay taxes on the profit earned after selling.
Now you see that investment always works.
Lesson 4: History of Taxes and Power of Corporations
How does incorporating your company facilitate avoiding taxes?
One of the main reasons why Robert motivates us to become a businessman rather than an employee is because incorporating gives us the facility to pay taxes after doing the business expenses. Therefore, the government also helps businesses to grow. Moreover, the income tax rate for corporations is lesser than for individuals.
What are corporations?
A corporation is nothing but a file folder wherein attached some legal documents. This is recorded in a government agency and kept with an attorney.
Robert says that businessmen are very smart in evading taxes. They hire the finest lawyers and accountants. They also talk with government officials and request them to frame tax laws in favor of businesses.
An example of evading tax in real estate is taking the help of section 1031 in US.
What are the skills to learn to become rich?
- Accounting
- Investment
- Understanding of the market to learn where to invest
- Law
Why should you have an understanding of laws to become rich?
- First of all, don't be dependent on anyone for your business. Believe in yourself for everything, be it accounting or law. Believe in these two hands you got. When you have an understanding of the law, you know about the tax benefits. When you incorporate your company, the company tour becomes a board meeting. Car expenses, insurance and repair become business expenses. Membership of the health club is also comes under a business expense. Often, the restaurant bills are partial expenses. And the list of such expenditures before paying taxes goes on.
- Protection against legal cases
Lesson 5: Rich people Discover Money
The main point that Robert wants to make in this lesson is that sometimes smart people don't achieve as much as the brave people do. You need to know how to search for such opportunities that others can not see.
Lesson 6: Work to learn - Do not work for money
Learn to manage the following
- Cash flow
- People (by being an example for them)
- Time
What does Robert want you to learn above all? According to Robert the number 1 skill to learn is sales and marketing.
In the same lesson, Robert also says that his rich dad wanted him and Mike to learn some aspects of everything rather than being an expert of only one thing. That's how you become a good manager.
Robert also recommended the book The richest man in Babylon to learn about the importance of investment.
Earlier in this post, I have mentioned that Robert saying that the debts can be good. But at the end of this book, he writes that the first principle of investing in yourself is to get rid of debt. So the decision remains in your hands only. But according to me, you should never get into the vicious circle of debt.
What is the best method to become successful?
The best method to become successful Robert writes is by copying your ideals. While investing in real estate and stocks Robert copies the methodology of Donald Trump, Warren Buffett, Peter Lynch and George Soros etc.
How to buy and sell properties?
While buying, if the price of a property is negotiable then offer the half price to what the landowner demands.
Always keep searching for good deals. Robert says that he stops and talks to drivers, postmen etc, these people have an excellent knowledge of their territory.
While selling, you do not need to quote the double price. What you need is to keep offering your property to more people. It's the volume that matters the most in selling.
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