Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Book Summary

 

Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!

Rich Dad Poor Dad is Robert's story of growing up with two dads, his real father and the father of his best friend, his rich dad,  and the ways in which both men shaped his thoughts about money and investing. The book explodes the myth that you need to earn a high income to be rich and explains the difference between working for money and having your money work for you.

Chapter 1.

Why do we keep falling for the rat race.

 

Like many other things, we choose our jobs to please others — mainly our parents. But what do we want for ourselves? Today, many people choose to be trapped in a race against themselves. The rat race idea is that you keep doing tons of hard and often unnecessary work to make ends meet. You do everything it takes, and your employer, the government, and utility bills take away nearly everything you've earned, leaving you with little or nothing to save.

The rat race is an endless quest where you must work hard to catch up with bills and taxes.

Sadly, many individuals are aware of the rat race and hate to be part of it but are worried about backfiring from their social circle; they keep racing anyway. We've all heard conventional advice: “Go to school, study hard, get a good job, and everything will be alright.” The truth is, this advice is a clear indication of how the poor and the middle class see financial security. The rich don't see things that way. This is no longer the recipe for a life free of financial struggles. Good education and high grades no longer guarantee success.

Financial education is robust while money is where this power manifest.

You can go to college, graduate with a summa cum laude, get a white-collar job, and never have financial growth. You need to realize that no matter how hard you work, you will never be the one who benefits from your endeavors. One day you may have it all and lose it the next day. However, you can gain power over money and start building wealth from scratch with financial literacy. A more significant percentage of people in our society still follow the “go to school” advice. These people may avoid being poor, but they never grow wealthy. Societal disapproval prevents us from quitting the rat race and building wealth.

One of The reason the rich get richer the poor get Poorer and the middle class struggles in the debt. Is that the subject of money is taught at home not in school.

Did you know? Adjectives “broke” and “poor” have different connotations. The first is a temporary state; however, the second is an eternal quality.

Chapter 2
Fear and greed prompt us to make irrational decisions.

Many individuals live in perpetual fear about their financial condition. They are afraid to blunder with paying their bills, getting fired, or not having enough money, which would force them to start over. Let's be honest; many of us fear not measuring up to other people's expectations, whether family or society. Then, there is greed. Most individuals have a price; once they get offered a high enough loan, most can't resist the thought of that “safe” paycheck at the end of the month and all the things they could purchase with it. 

These two factors trap these individuals in the pattern of getting up early, hurrying to work, stressing out daily, and working hard on something they often do not like. Then after a long month, they finally get the paycheck and bills. Each second, day, month, and year of their lives are run by a never-ending cycle of fear and greed. How does the latter manifest? Typically, we are afraid of losing our jobs, and greed shows when we can't wait any longer to get that paycheck — saving only enough to go on vacations from time to time and forget about the endless, unhappy struggle. Nevertheless, even if we make money, our greed will try to persuade us that it's still not enough, forcing us to continue the rat race.

To Realize that we are stuck in the rat race. We need to look at our lives from a third percent perspective.

A rat race is a tricky phenomenon. On the one hand, we know what to expect, and no one needs us to make tough (or any) decisions. On the other, this supposed lack of responsibility doesn't make us happier. We rush to work, scared of being late and getting fired. The more we give in to the rat race, the more our brain learns that this is our natural behavior to run after something unattainable endlessly. So, we get the education and pass all exams with flying colors. Then go for the job that should pay. However, this conventional path passed down by our predecessors doesn't let us experience financial growth.

Greed only dictates rising our living standards but it doesn't teach us how To do it.

Financially ignorant people allow emotions to control their decision-making. The fear of losing money prevents them from investing in assets or stocks because of the risk involved. Greed encourages spending money to improve lifestyle, which is safer than investing in assets. Fear and greed hinder people from becoming wealthy in the long run. You have to gain financial knowledge to get out of this rat race. To buy assets, you must learn how they differ from liabilities.

 

Chapter 3.
Conventional education systems don’t teach financial knowledge; self-education is the key to financial success.

There needs to be more than talent and a college degree to build wealth; the world is full of poor people with great talents. Financial education — investing, debt, risk, accounting, compound interest, stocks, and many more — is the main factor that creates the gap between the poor and the rich. Sadly, our educational system and school curriculum are not set up for financial literacy. The rate at which high schoolers max out their credit cards these days indicates how leaving investing, savings, debts, compound interest, and much more out of school curriculums affects our mindset.

If financial literacy was a school subject not family wisdom, getting Rich Would not be an unattainable godsend But a real pursuit.

Lack of financial literacy affects both the young and the old. Both sides of the divide make money decisions. Society has not equipped us with financial literacy, and it is up to you to educate yourself. Whenever you start to work on your financial education is good, but the earlier, the better. Invest in yourself, as this is the most important thing.

Start by investing in your mind enroll in seminars and finance classes and read as money book as possible.

As humans, we often learn best by example, so you must get a mentor. Your mentor could be a person who has already achieved what you want. Then, ask them to guide you. You don't need a lot of free time to become financially literate. Instead, take advantage of your job and gather the essential skills there, which will serve you in your own business when the time comes. For instance, you could overcome timidity by working in the sales department of any product company. You will get the appropriate training with specialized people. And when you start cold calling total strangers, you will forget what being shy is.

 

Chapter 4.
If you want to build wealth you must be willing to take risks.
 

You need to start doing things differently to change your financial situation. And knowing how to handle risks is the biggest change you need to make. Financially successful people are risk-takers. They don't fear risks but have developed an uncanny ability to manage and get the best of them. Taking a risk isn’t about keeping your money in the bank. It means investing in stocks and bonds. It is riskier than your usual bank savings, but they generate more income quickly.

Investing in stocks and bonds generates more income in a short amount of time.

The truth is that the predisposition to take risks distinguishes the wealthy. While the rich are predisposed to take risks, the poor and middle class tend to “play it safe.” They hold on to their jobs with their last breath because they fear what could befall them if they lose their paychecks. When the fear of losing overshadows the excitement of winning, people tend to play safe instead of investing in something huge. They seem to say things like, “I don’t want to lose,” but in reality, losing is inevitable. As you progress to victory, losing is inevitable. You cannot win without losing sometimes. It is a natural way of things, which doesn’t make you a loser or a failure. It means you've been given a chance to learn from a new situation and grow. To build wealth, you have to be more than willing to take risks. We struggle to make ends meet when we choose to work for someone our whole lives.

 

Chapter 5.
No one becomes rich overnight, learn how to fuel your motivation

The path to building wealth is long and trying; it's easy to become demotivated when you hit a hurdle. For instance, the price of the stock you invested in might take a dip. You need to remain committed and motivated during hard times. One way to keep your motivation is to create a list of “wants” and “don't wants” for reference. It can contain things like “I want to be free of my debts within three years.” And “I do not want to end up like my parents.” This list will keep you motivated in the face of adversity. Spending money on yourself before settling your bills is another way to stay motivated. It may seem counterintuitive, but you will know precisely how much money you need each month to meet your goals.

Working hard for a paycheck and spending the most of it out of greed is the wrong kind of motivation

 

Don't see this as an opportunity to max out your credit card and plunge yourself into debt up to your eyeballs. Paying yourself first will create extra pressure, which drives you to look for creative ways to make more money. This will also help you develop financial discipline, a quality familiar to all financially successful people. Now, let’s discuss what an asset is and how it will help you earn more. An asset makes more money for you. Liability gets you no profits but costs you money. Your house is not an asset; it costs you high property taxes and a lifelong mortgage without generating income. 

Remember these tips to maximize your wealth: 

• The fundamentally applied knowledge that differentiates the rich from the poor and middle class is that they buy assets. 

• While an asset generates more money for you, a liability is something you pay for. 

• Examples of assets are bonds, mutual funds, businesses, stocks, and anything else, generating income that is appreciated over time and can be readily sold. 

• Investing in assets makes your money work for you by passively generating income. 

• Assets generate more money for you: as your assets cover your expenses, you take the money and reinvest it into new assets, thus generating a compound growth effect. 

Unfortunately, most people categorize liabilities as assets. Many fancy buying a house, thinking it is an asset, while it is one of the most money-consuming liabilities you can get. With houses come high property taxes and a lifelong mortgage, and they don't generate income.

 

Chapter 6
Your profession is not as significant in wealth creation as your business.

Business and profession are different things. Your profession is whatever you do, as your day job pays your bills, buys groceries, and generally covers your cost of living. On the other hand, investing your time and money into a business will grow your assets. It is nearly impossible to build wealth just with your profession, as it only covers necessary expenses in most cases. To create wealth, you must build a business while you work at your job.

You need cash flow, people, and personal time to start your own business.

The profession of a chef is cooking. It pays the bills but will likely not make them rich in the long run. They invest in real estate and invest whatever extra cash they earn each month into acquiring income-producing assets. In the same vein, tire salesman invests their leftover income into stock trading. These two instances show that professions cater to monthly bills. But by committing extra income to businesses, they are growing their businesses and increasing wealth. 

Your work will initially fund your business; wait to quit your day job until your business shows sustainable growth. At this point, your asset, not your profession, becomes your primary source of income. And that is financial independence. Sound knowledge of taxes is also crucial. The rich deeply understand taxes, and they handle them differently than the poor and middle class. Wealthy people focus all their corporate activities on their assets. This way, they can hire professional accountants and lawyers, which help them reduce taxes and protect them from lawsuits.

An employee pays taxes first and then lives on what's left of their salary until the next paycheck. A corporation spends all it's profit and then pays taxes from what is left.

You can learn how to cut down your taxes, too. To do that, you need to educate yourself on how the tax system works. The more you spend, the less there is left to tax. Thus, you can minimize how much is taken from you.

Chapter 7.
Even with financial literacy, obstacles can keep you from wealth; learn how to tackle them.

 

When you educate yourself on finances, you can still face roadblocks to success. The five main reasons why financially literate people fail are: 

• Fear 

• Cynicism 

• Laziness 

• Bad habits 

• Arrogance Fear 

Robert Greene explains that he has never met a wealthy person who hadn't experienced losing money, but almost all poor people he met have never lost a cent. The lesson is clear, becoming rich is synonymous with learning to take risks and minimizing the fear of them. Winners are inspired by failure, while losers are defeated by it. When faced with failure, winners will only work harder. Losers cannot handle losing, which is why they give up. Handling failures by learning from them is a secret all winners know, but losers don't.

Most people struggle financially because they play not to lose instead of playing to win.

Cynicism People's doubts and uncertainties keep them poor. Technically, getting out of the rat race is very easy, but doubts keep rat racers paralyzed. Instead of analyzing as winners do, the cynics prefer to criticize. Their critique blinds them from seeing the opportunities.

Many never get rich because of the fear of losing money outweighs the joy of getting it.

Laziness Counterintuitively, staying busy is the most common form of laziness. Busying ourselves with numerous activities and errands is the way to avoid facing our fears. Deep down, we all anticipate this simple truth. That's why we often get annoyed if someone reminds us of that fact. We don’t have the time to cater to our wealth, health, and loved ones. Bad habits Education is not the only factor that defines success. 

The latter consists of certain habits. The rich always work on themselves. They invest in themselves first. Start building habits that bring you closer to your goals. Acquire a positive habit of reading every day. Also, exercise daily to strengthen your physical health. Find the time for the things that matter. Arrogance Arrogant people often lose money due to their ignorance. They believe that if they don't know something, it is not important. When you start pursuing success, you must make humility a priority. If you are humble enough, you can learn something from each person that crosses your path and every situation you encounter. The phrase “I can't afford it,” turns off your brain, whereas the question “What do I need to do to afford it?” opens up possibilities, excitement, and dreams.

 

Conclusion

Our education system needs to teach financial literacy. So, it's totally up to you to develop yourself. Building wealth will become easier and achievable if you learn to think like the rich and understand how the financial world operates. Never hesitate to invest in developing your mind. Our mind is the most crucial asset. With its help, we can generate great wealth. Many things hold us back in our pursuit of getting rich, and the lack of money is not our worst enemy, unlike our false visions and misconceptions about how to become wealthy. The biggest one is the idea that we must work ceaselessly for someone else. 

However, harder work only pays if we learn to work for ourselves. A valuable piece of advice Robert Kiyosaki gives is that we should understand the difference between liabilities and assets. The former requires regular investment, whereas the latter generates money for you. Moreover, we need to get familiar with how the taxation system works and follow big corporations' example regarding their earning-spending-getting taxed cycle. Determined to succeed in getting rich, we need to keep in mind that fear, cynicism, laziness, arrogance, and bad habits will get us nowhere, even if we learn to allocate our money the best way. 

Try this 

• Reduce your liabilities and unnecessary expenses, and get some assets. 

• The wealthy worry about asset columns, not income statements. Start thinking like the rich and focus on building your asset columns.

• Investing in real estate is an excellent path toward financial independence. If you get the opportunity to invest in real estate, take it! 

• Connect with successful people in the business you are interested in and learn as much as you can from them. 

• Money comes and goes. But educating yourself on finances will make it possible to start building wealth.