Rich Dad Poor Dad – Book Summary

The title, “Rich Dad Poor Dad – What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!”, is a classic investment book. In his own unique way, Robert Kiyosaki describes the differing mindsets of the rich and the poor/middle classes. Whilst the book primarily caters to a US audience, the key takeaways can be applied irrespective of geography.

The concept of the book is that Robert Kiyosaki has two fathers. His real father was well educated but poor, whereas his second father was a rich, self-made man. Through this narrative, Kiyosaki seeks to explain that if you adopt the mindset of the rich, then there is no reason why you cannot yourself become rich. There is no ‘get rich quick’ scheme at work here – Kiyosaki is an advocate of improving financial understanding and making better investment choices so that money starts to work for you.

The middle class mindset

The standard middle-class approach to financial security is “Go to university, work hard, save money and you will be fine”. However, the reality is that if you follow this advice and remain employed all of your life, you will likely never be rich.

Kiyosaki discourages this approach and regards lifelong day-jobbers as ‘stuck’. He advises against trading hours for money unless that money can be invested for future income or growth. If you currently need to remain in employment, then you should take a job which allows you to expand your trade or enhance your financial education.

The rich mindset

The rich don’t follow this traditional advice. There are very few rich people who have generated significant wealth by working for someone else. Instead, rich people purchase businesses / make investments.

Instead, the rich understand that money is a tool. They make money work for them and have less need to trade time for money.

In order for the poor/middle classes to make this transition, they must buy assets, not liabilities. Rather than buying a new TV or car, they should buy income-generating assets and hold them until a good opportunity to sell presents itself, or to generate proceeds to invest in even more valuable assets.

Invest in the most tax-advantageous way

Individuals can only invest using after-tax income, unless they are making a pension investment. However, companies can invest in future growth using pre-tax income. For this reason, Kiyosaki states that you should incorporate your own business to make investments. In addition to tax advantages, incorporating brings other benefits such as added legal protection and greater legitimacy.

Invest in income-generating assets

Kiyosaki advocates buying income-generating assets and decries the common assertion that the home you occupy should be considered an asset. Why? Because if it’s mortgaged, your home requires a cash outflow each month rather than providing a cash inflow.

You should therefore not overextend on your home purchase if this will stop you from investing in income generating assets such as shares, buy-to-let investments or trading businesses.

Start your own business

Kiyosaki advocates starting a business to become rich. Once you have a profitable business, you have the option to reinvest cash generated into other assets, grow the business further before selling it or taking the business into public ownership.

Whilst Kiyosaki acknowledges that most middle class people do not wish to give up their comfortable jobs, he argues that they do not have to, citing many sucessful businesses initially built by part-time founders (e.g. Dell, Amazon).

In summary

If you want to become rich, you need to adopt the mindset of the rich. This means not focusing on employment and savings, but rather focusing on building businesses and investing in assets. In doing so, you will build an investment portfolio that will produce money without you needing to trade time for money.

The poor/middle class way of life often provides more comfort and security, so it’s important to consider the pros/cons of the different approaches.

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