Top 10 takeaways from Rich dad poor dad

How did the wealthy become rich and how come the poor never can get out of debt?

What’s the real story?

“Rich dad poor dad”, a book written by Robert T. Kiyosaki, explains this in detail. The answer is argued to lie within the mindset of the wealthy/the poor person primarily, and in money management and financial literacy secondly.

Today I will summarize the 10 most important points that Kiyosaki makes in the book. Let me start out by quoting him:

Rich people buy assets, poor people buy liabilities that they think are assets”.

Kiyosaki had the opportunity to grow up with two dads. One of them lived under financial stress, with a constant fear of losing his job, upon he was extremely dependent. Even though he worked hard and had a high salary, he could never get out of debt. He ended up in a vicious circle – get up, go to work, pay bills. Repeat. This is what Kiyosaki refers to as the Rat Race.

The other one achieved financial freedom at an early stage in life, was never dependent on anyone but himself, and lived prosperously. The two had different opinions about many things in life, and growing up being exposed to both schools, Kiyosaki had the amazing opportunity to choose the path he preferred.

The takeaways are summarized here, for those in a hurry, but explained and developed upon later in this post:

  1. Your house is not an investment.
  2. Think about every setback as an opportunity to learn.
  3. Fear is a major obstacle on the path to wealth.
  4. Money without financial intelligence is soon gone.
  5. Rich people buy assets, poor people buy liabilities that they think are assets.
  6. Stop focusing on your salary and start focusing on your assets.
  7. Avoid cynicism, laziness, bad habits and arrogance at all cost.
  8. Don’t diversify with too little money.
  9. Educate yourself continuously.
  10. Find the right heroes.

There are several other important takeaways in the book, but many of them are inspired by the book I summarized in my last post, Top 10 takeaways from The richest man in Babylon.

Here are the 10 takeaways, in expanded form. As usual, the authors thoughts will be in plain text and my occasional comments will be in italic.

1. Your house is not an investment.

By definition, an investment should put new money in your pocket every day, month or year. A house, on the other hand, devours your hard-earned money. Even if people would consider their house an investment, it makes up a dangerous proportion of their total assets (note that the author wouldn’t call it an asset, but a liability).

Kiyosaki isn’t trying to tell people not to get a house here. What he is saying though, is that many households own a house that, value-wise, is disproportional to their assets and to their income capacity. “Our house is our greatest investment” is an excuse for owning a mansion that doesn’t fit the wallet. In Sweden, this is becoming a greater problem for people. The salaries haven’t been rising at nearly the same rate as the housing prices, and because of this people have become more indebted.

“When I want a bigger house, I first buy assets that will generate the cash flow to pay for it.”

2. Think about every setback as an opportunity to learn.

Life will push you around. Use that as a chance to become wiser. Kiyosaki imagines that life says “Wake up. There’s something I want you to learn”, every time he gets a push. Some people are afraid to listen to life. They play it safe, always doing the things that are socially accepted as “right”, saving themselves for an event that will never occur. Then they die old and boring.

3. Fear is a major obstacle on the path to wealth.

Fear is what keeps people working at a job every day. The fear of not being able to pay their bills, and of starting over. Working at a daytime job is therefore comfortable, because it removes many of these uncertainties. It’s not the path that leads to the greatest payoffs though. To get there, you need to be in the uncomfortable zone, and put both time and money on the line. A good way to handle fear in the stock market is by using “stops”. These will make sure that you leave a position if the loss is too big for you to handle, and you can set it according to your own preferences.

“In my own life, I’ve notice that winning usually follows losing. Before I finally learned to ride a bike, I first fell down many times. I’ve never met a golfer who has never lost a golf ball. I’ve never met people who have fallen in love who have never had their heart broken. And I’ve never met someone rich who has never lost money.”

This book is so full of amazing quotes regarding the fear of losing that I’ll throw in another one:

“Repeating Fran Tarkenton’s quote, “Winning means being unafraid to lose.” People like Fran Tarkenten are not afraid of losing, because they know who they are. They hate losing, so they know that losing will only inspire them to become better. There is a big difference between hating losing and being afraid to lose. Most people are so afraid of losing money that they lose. They go broke over a duplex. Financially, they play life too safe and too small. They buy big houses and big cars, but not big investments. The main reason that over 90 percent of the American public struggles financially is because they play not to lose. They don’t play to win.”

4. Money without financial intelligence is soon gone.

Therefore, you need to become financially literate. To learn accounting is probably one of the most important steps in doing this. Moreover, you need to start learning about investing, markets and the law. The last one is to set up corporations to pay less taxes and be protected from personal lawsuits.

5. Rich people buy assets, poor people buy liabilities that they think are assets.

This is a major one. You must learn the difference between an asset and a liability. It really is simple, but many still screw it up. “An asset puts money in my pocket. A liability takes money out of my pocket.” Because of this, neither your house, your car, nor your new 4k TV is an asset. To exemplify, here are a few true assets:

  • Real estate (I’m aware that this sounds a big contradictive. Didn’t you just say that my house does not count as an investment? Yes, but buildings can still be an investment. For instance, if you buy a house to rent it, or to renovate to sell at a higher price at a later point. But your own house is not an investment since previous two examples are usually not the purpose of owning it).
  • Stocks
  • Bonds

6. Stop focusing on your salary and start focusing on your assets.

This is an interesting subject. If the average person gets a pay cut by 2%, he would be furious. On the other hand, if he loses 2% in the stock market (his assets), he shrugs it off by blaming bad luck, or bad asset managers. Yet, for some people, it is a worse situation to lose 2% of their assets than to lose 2% salary. Salary levels are taken personal, while asset levels are not, but they should be taken at least as serious. By the way, losing 2% of your assets isn’t a problem. Remember takeaway 3 about fear, if you don’t want to risk anything, you’ll never gain anything either.

7. Avoid cynicism, laziness, bad habits and arrogance at all cost.

It is argued that cynicism, laziness, bad habits and arrogance can keep you from becoming wealthy even though you are financial literate.

  • Cynicism will keep you paralyzed in situations when you need to act. Just keep in mind that the situations when everyone else is too afraid, gives the best opportunities.
  • Laziness keeps people from doing what they deep inside know is good for them. The cure? Greed. The desire to have something better, and to not be afraid to get that.
  • Bad habits, like spending your money on overwhelming luxuries, has an easy cure. Pay yourself first. By paying yourself first you get motivation. Your budget is now smaller, but you still have expenses that must be paid. Your creditors will complain louder than you if they don’t get their money, so by paying them later you’ll get more motivation to save, or to earn, more money.
  • Arrogance is investing without being properly educated or involved in the investment. It is what you don’t know that loses you money. As soon as you feel uncertain about a subject, read a book or ask an expert to find out how you can improve your investment strategy.

8. Don’t diversify with too little money.

There is no real reason to diversify your portfolio if you only have a small amount. If you want to become rich, you must first be focused.

Look at the top 10 richest people in the world. By the time I’m writing this it is:

  1. Bill Gates, $86 B. Microsoft.
  2. Warren Buffet, $75,6 B. Berkshire Hathaway.
  3. Jeff Bezos, $72,2 B. Amazon.com.
  4. Amancio Ortega, $71,3 B. Zara.
  5. Mark Zuckerberg, $56 B Facebook.
  6. Carlos Slim, $54,4 B. Grupo Carso.
  7. Larry Ellison, $52,2 B. Software.
  8. Charles Koch, $48,3 B. Diversified.
  9. David Koch, $48,3 B. Diversified.
  10. Michael Bloomberg, $47,5 B. Bloomberg LP.

Among these, at least 9/10 became rich, not by being diversified, but by being focused. Most of them are self-explanatory. Larry Ellison was the founder of Oracle, and has only lately diversified. The Koch brothers inherited Koch Industries, which is diversified today, but was focused exclusively on oil and chemicals to begin with. The only one who might have been diversified all the way is Carlos Slim, who owns a substantial amount of the Mexican stock listings.

Anyway, while your account balance is small, it is easier to earn lost money back, if you would end up in that spot.

9. Educate yourself continuously.

Don’t be afraid to spend money on education that will improve your knowledge or develop skills necessary to beat your weaknesses. Kiyosaki spent many thousands of dollars throughout his life on seminars, books, and so on. And guess what? The returns from these investments are unmatchable. Arrogant people often find this hard to do. They already know everything, and rather talk about what they know than try to learn something new.

“Listening is more important than talking. If that were not true, God would not have given us two ears and only one mouth.”

10. Find the right heroes.

Here is a great cure for a weak motivation – find the right idols. Not only will they provide you with crucial information on how to become successful in the field you wish to thrive in, they will also make things look easy. Once you’ve decided to achieve greatness, many persons in your surrounding will oppose you, but not your heroes. They will inspire you and tell you that if they could do it, so can you.

Is there anything missing? What do you think are the top 10 takeaways from “Rich dad poor dad”? Do you want me to develop on any of the subjects? Just write a comment.

If you would like to read the full book, and, besides setting your financial mind right, helping me out of the Rat Race, buy it here today.

For more investment tips delivered straight from my igloo, stay tuned!

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