Rich Dad Poor Dad by Robert Kiyosaki Book Summary & Commentary
Rich Dad Poor Dad Quick Summary:Rich Dad Poor Dad is Robert Kiyosaki's story of growing up with a "Poor Dad" (his middle class biological father) and a "Rich Dad" (his best friend's father and a savvy entrepreneur). Kiyosaki learned rich people buy assets that make them money, rather than working for an income.
1. Rich and poor people have very different ideas about money
- What separates the rich and the poor? One part of it is that money or finance is rarely taught in school. Kids learn about money at home. This means kids often end up learning and repeating the same habits that kept their parents poor. A huge failure of our education system is that it does not teach basic financial literacy.
- Robert Kiyosaki was lucky to grow up with two “dads.” They shared with him wildly different perspectives on money and life:
- His “poor dad” was his biological father. Poor Dad was very well-educated, having graduated from top universities with a Ph.D. He had a stable middle-class job working for the government. Poor dad always told his son to get a respectable degree, then work his way up the corporate ladder. The most important things to him were job security with great benefits.
- His “rich dad” was his friend Mike’s father. Rich Dad never graduated from elementary school, but he was building a business empire in Hawaii. He already owned several small supermarkets , plus warehouses, restaurants and a construction company. Rich dad also believed in education, especially financial education, but he did not recommend a typical career and investing strategy, which makes it almost impossible to become really wealthy.
- At age 9, Kiyosaki and his friend Mike wanted to be rich. They were jealous of other kids at school who were driven in fancy cars. The other kids sometimes excluded them for being poor. One day Kiyosaki’s father found the two boys melting toothpaste tubes into counterfeit nickels. They were trying to “make money.” After explaining to them this was illegal, he told the two disappointed boys that Mike’s dad knew how to make money. Mike was surprised by this because his dad didn’t have an expensive car or house.
Kiyosaki’s biological father (aka “Poor Dad”) was well educated, but he could not teach his son how to become rich. But Kiyosaki found another mentor in his best friend’s dad (“Rich Dad”) who was building a business empire.
2. Rich Dad taught through real world experiences, not lectures
- Rich Dad agreed to teach the boys how to make money, but only if they worked for him. He offered them basic jobs at one of his small supermarkets. The boys began working 3 hours every Saturday. The work was very boring and repetitive, mostly keeping the store clean and organized. Kiyosaki had to miss his softball games which he loved.
- They were only being paid 10 cents per hour which even in the 1950s as a kid was not much money. Minimum wage was 25 cents an hour at the time. When Poor Dad learned his son was being paid less than that, he was outraged. He felt his son was being exploited and told him to quit immediately unless he got a raise.
- After 4 weeks of working, Robert was not happy. Rich dad had promised to teach the boys, but Robert hadn’t seen or talked to him for weeks after that first meeting! He was starting to feel angry, especially being paid so little. So he told Mike he was ready to quit. Mike just smiled and said Rich Dad had expected this to happen. Rich Dad had given Mike directions, that when Robert was ready to quit, then Mike should tell him to go talk to Rich Dad.
- So Robert went to Rich Dad intending to ask for a raise. He confronted Rich Dad about not fulfilling his end of the deal—not teaching the boys how to make money. When Rich Dad heard all this, he asked:
“Does teaching mean talking or a lecture?” rich dad asked. “Well, yes,” I replied. “That’s how they teach you in school,” he said, smiling. “But that is not how life teaches you, and I would say that life is the best teacher of all. Most of the time, life does not talk to you. It just sort of pushes you around. Each push is life saying, ‘Wake up. There’s something I want you to learn.'”
- Rich Dad said he was teaching the boys through real world experiences, not lectures. By giving Robert an opportunity to work for not enough money, Robert got a taste of how most people live their whole working lives. Most people always feel like they don’t make enough money for everything. Even when their income increases, it doesn’t change their situation in the long term.
“Rich dad” said if Robert worked in his supermarket, then he would learn to make money. Robert soon became tired of working for little pay and confronted Rich Dad. This turned out to be the first “real world” lesson: that most people are stuck in jobs they dislike being paid too little.
3. Spotting opportunity is a skill you can acquire
- Rich Dad said it was very important to learn how not to be controlled by fear or greed. When most people go to a job they don’t love 8 hours every day or urge their kids to finish a degree that leads to a secure career, they are being run by fear. Even rich people often have a bigger fear of losing it all than when they had little money.
- So Robert went back to working, but this time making no money. Rich Dad said this was essential for the boys to learn the truth about money. Robert didn’t like not being paid, but he trusted Rich Dad who said this would teach them how to really make money.
- Rich Dad said not getting paid would train their minds to see opportunity. And that’s exactly what happened. One day Robert and Mike noticed the woman running the supermarket was getting rid of the old comic books. She cut half the cover off each book and threw the rest away. She said she had to give the covers back to the distributor for credit. So the boys asked if they could have the old comics, and the distributor said they could keep them if they did not resell them. So they began collecting all these old comic books.
- Then the boys opened a comic library in a room of Mike’s basement. They charged neighbourhood kids 10 cents to come and read as many comics as they wanted for an afternoon. Since the comics usually cost 10 cents each, this was a bargain. They hired Mike’s sister to work at the library for $1 per week. They made $9.50 every week. This lasted for 3 months until the library had to be shut down because some rowdy kids came and caused trouble. But the lesson stuck.
- Most people are too focused on making money in the short term with a job, so they never learn how to spot business opportunity. Rich Dad had taught them a priceless lesson. By having the two boys work for no money, they had learned how to be creative and find a new way to make money.
- Best of all, the library made them money even when they weren’t physically there, which is called passive income. As young kids, they had already escaped the trap most people are stuck in of forever needing to work for money.
Rich Dad said working without getting paid would train Robert’s mind to see opportunity. Soon enough, Robert thought of a money making plan. He recycled the old comic books from the supermarket, opening a comic library that other kids paid him to use.
4. People become wealthy not from working, but by buying income-producing assets
- More money usually does not solve financial problems. You see this truth most clearly in people who win the lottery or landed a big inheritance, only to be broke again a few years later.
- Even people with high incomes often struggle financially because they spend their money in the wrong direction. With more income, most people simply accumulate more debt. As a kid, Robert wanted to things like a new baseball glove, while adults want to buy much more expensive toys like cars or boats. Higher income people are most often stuck in the same trap as everyone else. Most people don’t understand this, so Kiyosaki is often asked by young people how they can increase their income.
- True wealth is measured by how long you can survive into the future without needing to work. Most people would agree that if someone has an expensive car and house, but they are forced to keep working when you don’t want to, then they are not really wealthy. Kiyosaki was able to retire at the age of 47. He actually didn’t stop working, but he could have if he wanted to, and his wealth would have continue to grow. How did he do that? By focusing on buying, building and growing his assets.
- Rich people focus on buying assets, not working more for money. How do you know if something is an asset? By looking at if it brings you money or costs you money. (This is what business people call cashflow.) For example, a car is not an asset because it costs you money to use and maintain, and it also decreases in value the longer you own it!
- If something provides you income, then it is an asset. If it costs you money, then it is a liability. Good assets types include:
- Real estate that generates income,
- Businesses that don’t require your physical presence.
- Intellectual property that gives you royalties (like music, books, etc)
Rich dad explained this point of view over and over, which I call lesson number one: The poor and the middle class work for money. The rich have money work for them.
- Most people confuse liabilities with assets. For example, Kiyosaki has controversially said “your house is not an asset” because while houses tend to go up in value, they don’t provide income. Also, because many people buy the most expensive home their bank will let them sign a mortgage on, they don’t have money left over to invest in real assets. Here is a nice short video from Kiyosaki to help explain assets and liabilities.
- Keep expenses and liabilities low, so your money can be poured into buying assets. Rich Dad always stressed the importance of this to Kiyosaki. Then, when your assets are producing income, you can use that money to buy things you want.
When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house.
- You don’t need to start a company to start building wealth. In fact, Kiyosaki does not recommend being an entrepreneur for most people because most new businesses fail. Kiyosaki began investing in 1974 while he was an employee for Xerox. Being one of the top salespeople for the company, he made a great income, but he wasn’t satisfied. He really wanted to escape the Rat Race. So by living frugally and investing his savings smartly, within 3 years he was making more money from his real estate investments than his job at Xerox.
- (If you have trouble saving money, then I recommend you look at our note on the book Your Money or Your Life. That book teaches that money is really your life energy and shows you how to stop seeking happiness through consumption.)
A higher income usually does not solve money problems. You can see how many lottery winners and rich athletes are soon broke again. The real way to build wealth is to buy assets, which are things that put money into your pocket like stocks, bonds, certain real estate, etc.
5. Real estate is a great asset type because it provides a stable foundation
- Kiyosaki always starts with a small property, then trades up to larger and larger properties. In the US there are big tax benefits to trading up like this. You can put the money from a real estate sale into a 1031 tax-deferred exchange and use that money to directly buy another property without paying capital gains tax on that transaction. This means you save a lot of money and can grow your real estate investments much faster.
- For example, here’s how Kiyosaki transformed a $5000 down payment into a million dollar investment:
- In 1989 he was living in Portland Oregan. This was just after a big market crash and local real estate was selling poorly. He often jogged through a neighbourhood filled with cute little gingerbread houses. There were many for sale signs in this neighbourhood.
- One day he stopped and talked to one of the house owners. The owner was discouraged because nobody seemed interested to buy his house, and it had been on sale over a year. Kiyosaki offered to look inside the house and a half hour later he bought it for $45,000. This was $20,000 less than the asking price, but the owner was happy to get rid of it. Kiyosaki only paid $5,000 as a downpayment.
- Soon a tenant moved into the small house. The rental payments basically paid for Kiyosaki’s mortgage. A year later the real estate market picked up. He sold the house to a couple from California for $95,000 which they considered a steal because where they lived before was more expensive anyway.
- Then he moved the capital gains from the sale of $40,000 into a 1031 tax-deferred exchange. He used this money to buy a bigger 12-unit apartment property in a different part of Oregon. A couple years later he traded up again to a 30-unit apartment in Phoenix Arizona. Phoenix was economically depressed at the time so he got a good deal again. And he eventually sold the Arizona property for $1.2 million. There are a few very valuable lessons to take from this example.
- Market crashes are a great opportunity to buy more assets at a discounted price. Experienced investors view crashes like going to the store during a big sale. Yet most people stop investing out of fear when they hear news of a crash, then they rush back to buy when the prices have already risen.
- Kiyosaki says it’s very important not to overpay for a property. If you pay too much in the beginning, then you will usually not make the money back later. One quote he repeats over and over again is:
Always remember: Profits are made in the buying, not in the selling.
In the US, you can grow your real estate investments much faster by using a 1031 tax-deferred exchange when you “trade up” to larger properties. The best time to invest in any market (real estate, stocks, etc) is when everyone else is scared to buy during a crash.
6. Work to learn new skills, not for immediate income
- View work primarily as a learning opportunity, especially early in your life. Rich dad encouraged Kiyosaki to learn from a wide variety of life experiences, which included trying out different types of jobs. Poor dad, on the other hand, believed Kiyosaki should get a degree in a very specialized narrow field, which would let him land a secure job with benefits at a big company.
- Kiyosaki repeatedly changed jobs because his goal was to learn. He graduated from the US Merchant Marine Academy in 1969 and went to work for Standard Oil in their tanker fleet. His educated poor dad was happy about this because his son was working for a large stable company with great pay. But then Kiyosaki quit after 6 months to join the marines. His poor dad was confused and dismayed by this decision.
- The truth was, Kiyosaki had joined the Standard Oil not for a stable career, but to learn about international trade routes. Then he joined the Marines to learn how to lead people. Rich dad always said the hardest part of business is managing people and being a respected leader.
- The most important skill to learn is sales and marketing. No matter what job you are doing, you will need to sell and market something. It could be selling a product, selling an idea or even selling yourself.
- After the Vietnam War, Kiyosaki went to Xerox to learn to how to sell. Xerox had a great sales training program and he wanted to overcome his natural shyness. His father really didn’t like this because he saw selling as shameful. After a few years, Kiyosaki was consistently ranked as one of their top 5 sales people. He quit yet again to begin his own company importing wallets from Korea.
- Kiyosaki’s first book sold well because he had studied sales and advertising copywriting. The title of that book was “If You Want To Be Rich and Happy, Don’t Go to School” which grabs people’s attention and is somewhat controversial—great for publicity. His publisher said the title should be “The Economics of Education” and Kiyosaki joked that with that title, the book would only sell 2 copies.
- One time a reporter after an interview asked Kiyosaki how to be a best selling writer. He recommended she take a high quality sales training course. She was offended, saying she hadn’t graduated with a Master’s Degree in English Literature to become a low-class salesperson. Then Robert looked down at her notes and pointed out that she had written “Robert Kiyosaki, Best-Selling Author” not “Best-Writing Author.” Kiyosaki calls himself a poor writer and yet he is a best selling author. She got the point.
Pick jobs based on what they can teach you. Kiyosaki worked for Standard Oil to learn trade, Xerox to learn sales and joined the Marines to learn leadership. The most important skill to learn is sales and marketing. No matter what, you will always need to sell some product, idea or yourself.
7. We all have inner obstacles to wealth like fear, arrogance and laziness
- Have you ever known that you should do something, but you still didn’t do it? We all have internal blocks that stop us from becoming wealthy, even after we have become more financially educated. Kiyosaki says these inner blocks include:
- bad habits and
- The first of these obstacles is fear. People are afraid to lose money. But the reality is that even Warren Buffet loses money with some of his decisions. Nobody likes to lose money, but it’s part of the process of investing and growing wealth.
- Don’t listen to people who are perpetually stuck in fear. Some people always believe the world is on the brink of collapse. News outlets feed this irrational fear because it helps them maintain attention. But remember that successful investors go against the crowd. They buy when everyone else is scared and not buying.
- (Tony Robbins wrote a personal finance book called Unshakeable. In it, he clearly explains how market crashes and corrections are a normal and predictable part of life. I recommend you look at our note for Unshakeable if you want to extinguish any fear you have around investing.)
- There are safeguards you can use to avoid losing too much money. For example, in stock market investing, you can use a “stop” which is a simple computer command that will automatically sell a stock you bought if the price drops below a certain number.
Unfortunately, the main reason most people are not rich is because they are terrified of losing. Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.
- A second big obstacle to wealth is arrogance. This is the attitude that “What I don’t know does not matter.” It’s about being closed to learning new things or changing your mind about an opinion. Rich dad often said arrogance always cost him money. Someone can be smart but arrogant.
- Many people (perhaps most people) begin buying investments without learning about investing. This is a costly mistake.
- For example, people buy real estate without considering they might be missing some valuable knowledge. In 1973, Kiyosaki saw an infomercial on TV selling a 3-day seminar about how to buy real estate for no money down. He says that course, which cost $385, has helped him make at least $2 million more dollars.
- Kiyosaki has three billionaire friends and nobody ever asks them how to make money. Their family or friends only come asking for a job or loan. Kiyosaki also noticed his rich friends like talking about money, they find it interesting. Poor and middle class people often say it is rude to talk about finances.
- A third obstacle is laziness. Kiyosaki says the cure for laziness is a little greed. Poor Dad would often say “We can’t afford it” or—worse—guilt trip his son for even asking for something: “Do you know how much your mother and I do for you?” Rich dad, on the other hand, taught him to ask the question, “How can I afford it?” which sparked motivation and creativity.
Overcome fear by knowing that every investor loses money, it’s just part of the road to success. Overcome arrogance by always learning more as you accumulate assets. Overcome laziness with a little greed, thinking creatively about how you could afford the things you want.
8. Having a corporation can offer you many benefits including tax savings
- In the beginning, taxes were only for the rich. That’s how the government sold them to us and got away with it. Throughout history, taxes were usually brought in as a temporary measure, usually to pay for a war. For example, in my country of Canada income taxes and sales taxes were introduced to pay for World War 1. But when the war was over, the taxes stayed. In the first decades of Canadian income tax, only the top 2% richest people paid income tax. But now, the average person must work 4-6 months of the year just for income tax.
- Meanwhile the rich use their financial knowledge to legally pay less taxes. In fact, governments create many tax laws to incentivize business owners and investors to create more jobs or buildings. These laws mean they pay less taxes. Rich Dad told Robert that he definitely paid less taxes than Poor Dad, even though he made more money. Higher income taxes mostly penalize well paid professionals like doctors, lawyers and dentists. Remember that truly wealthy people don’t make their money through working but assets.
- Corporations offer many benefits including tax advantages. Anybody can set up a corporation, it is just a folder of documents that your attorney has filled out and registered with the government. And there are some good reasons to have your own corporation. For example:
- A regular employee must first pay taxes before their expenses. Corporations can first deduct their expenses, then pay taxes on whatever money is left over.
- A corporation also offers protection. This means if you’re sued, your personal assets like your home can’t be taken away.
- (On the other hand, in some situations a corporation means you are double taxed, paying both corporate tax and personal income tax.)
- Robert Kiyosaki recommends Garrett Sutton’s books to learn more about setting up your own personal corporations.
Rich people use their financial knowledge to legally pay less taxes. For example, higher income taxes don’t really affect the truly wealthy. Opening a personal corporation can protect your personal assets like your home and (in some situations) you’ll pay less taxes.
9. Pay yourself first, even when it’s uncomfortable
- “Paying yourself first” means to invest some percentage of your income before you pay anything else. So for example, putting aside 10% for your retirement savings BEFORE you pay your bills, your mortgage or even your taxes. This advice was popularized by one of the true classics of personal finance books called The Richest Man in Babylon.
- Many people have heard this advice but do not really follow it. They only save and invest money after the other bills and expenses have been paid. This feels reasonable, but what happens is there is usually no money left over at the end of each month.
- Rich Dad believed you should “pay yourself first” even when it’s very difficult to do. His accountants and lawyers sometimes called him crazy or irresponsible for doing this, but he didn’t care. He set aside money to invest in assets before anything else, even when there were important bills or taxes due. He also never dipped into savings to pay for things. And this put a big pressure on him. He saw this pressure as the strongest motivation to become better at making money. Just like lifting weights at the gym puts pressure on your muscles to grow, this exercise puts pressure for you to become more creative at generating money.
- Avoid a lot of consumer debt. This makes paying yourself first much easier. If you keep your debt and unnecessary expenses small, then you will only have small bills due every month. This means you can save money to buy assets more easily. Later use the cashflow from your assets to buy that nice car or house you want.
Rich Dad always invested a part of his income to buying assets, even before he paid important bills or taxes. His accountants thought he was crazy, but this practice highly motivated him to become better at making money, just like lifting weights at the gym makes someone stronger.