Author: Robert T. Kiyosaki
_Robert T. Kiyosaki_
Reading time: 21 minutes
Synopsis
Rich Dad, Poor Dad tells a personal story and gives advice. It shows the steps to become financially free and rich. The author says this book teaches lessons that society never gives us. It shares knowledge that rich people teach their children. This knowledge is needed to become rich and stay rich. To prove his points, the author shares his own very successful investing career. By age 47, he had enough money to stop working and retire.
The Rat Race: Following Our Parents’ Advice Keeps Us Stuck.
Most of us know what “the rat race” means. But how would we explain it if someone asked us?
The rat race is like an endless routine of working. You work for others, not for yourself. This means we do all the work. But others – like the government, people we owe money to, and our bosses – take most of the money we earn. We all probably feel stuck in this rat race at some point. No one is happy in it, but we keep running. Why?
A special kind of fear controls most of our lives. This is the fear that society might not approve of what we do.
People often say, “Make sure you get a good education and a safe job.” We teach this to our children, but it’s old advice now. This advice came from our parents’ generation. But their situation was very different. After finishing school, our parents could find a job. They often worked for the same company for decades. Then they retired with a good pension. Today, there is no magic formula for a life without money problems or poverty.
The truth is, we can study hard, go to a good school, and get a well-paid job. But we might never become rich, because we are stuck in the rat race. Our bosses – not us – get rich from our hard work.
But we still believe this old idea and follow it. We are afraid not to meet the expectations taught to us since birth. What happens then? We might avoid poverty, but we certainly won’t get richer.
Blink 1 – Wanting and Worrying: Greed and Fear Affect Our Money Choices.
When it comes to money, everyone feels two basic emotions: greed and fear. This is true for rich and poor people. When we have money, we often think about all the things we can buy. When we don’t have money, we constantly worry that we will never have enough. People who haven’t learned how to manage money let these two feelings guide their decisions very strongly.
If we get a promotion and a good pay rise, we could invest the extra money in stocks or bonds. Our money might grow over time this way. The other choice is to buy something big, like a car or a house. If we don’t understand money matters, our fears and greed take over. Then we make a bad choice and often pick the second option.
The fear of losing money is very strong. It stops us from investing in stocks or other assets. It makes us only see the risks, not how these investments can make us richer in the long run.
At the same time, our greed makes us spend our extra income on a better lifestyle. We buy a house because we can afford it right now. We believe it’s safer than buying stocks.
But a higher living standard comes with costs. For example, we might need a loan to pay for the house. Our bills for electricity, water, etc. also go up. This means our pay rise is almost gone.
This is just one of many times when fear and greed stop people without good financial knowledge from getting rich. How can we stand strong against these powerful feelings that cloud our judgment about money?
First, we need basic financial knowledge. This includes understanding things like investing, risk, and debt. This knowledge helps us make smart decisions, even when we feel greedy or scared.
Blink 2 – Low Financial IQ: Even Good Schools Don’t Teach About Money.
Most people think being rich is about talent and skills. The world is full of talented people, but most are poor. What they lack is financial intelligence. This means a good understanding of things like accounting, investing, and more.
Sadly, most of us grow up without this intelligence. Our school system teaches us many useful things. But financial intelligence is not one of them. As children, we don’t learn about saving money or investing. That’s why, as adults, we often don’t understand things like compound interest. For example, even well-educated people today use their credit cards up to and over the limit.
This lack of financial education is not just a problem for young people today. Many educated professionals also don’t manage their money well. For example, politicians are seen as smart. They are among the best-educated people in our society. But there’s a reason why national debt is rising in so many countries. Many of the politicians in charge have little or no financial intelligence.
Average people are also surprisingly bad at managing their money. Look at retirement savings in the USA. Only half of all working people there have retirement savings. And 75-80% of those savings are far too small.
It’s clear: Our society has not prepared us well when it comes to money knowledge. So, each of us must educate ourselves about it. Especially during big economic changes, like now, it’s even more important to gain deep financial knowledge on our own.
Blink 3 – The Sooner, The Better: Financial Planning Is The First Step To Wealth.
We can start our journey to personal wealth at any age. But the sooner we start, the better. If we start at 20, we are much more likely to get rich than if we start at 30.
No matter our age, it’s good to start by setting goals when looking at our money situation. Then, we should learn what we need to reach those goals.
First, we need to be honest about our current money situation. How much money can we realistically expect to earn from our current job, both soon and later? And what expenses can we truly pay for with that money? This check helps us set money goals that we can actually reach. For example, we might see that we cannot yet afford that new Mercedes we really like. We could then say: “I want to be able to buy that Mercedes in five years.”
Next, we need to improve our financial intelligence. This is an investment in our most valuable resource: our brain. There are many ways to do this. A good start is to look closely at how we see work. We should not measure the value of our work by how much we earn. Instead, we should measure it by what we can learn.
For example, if someone is afraid of being rejected and wants to work on this, they could try a short-term job in a network marketing company. You might not earn much money there. But you can learn sales skills and build your confidence. This will help you a lot in the future.
We can also improve our financial education in our free time. For instance, we can join courses or seminars on money. We can read books about it. And we can try to connect with money experts.
If we build our financial foundation with these steps, we have a good chance of becoming rich one day.
Blink 4 – Who Dares, Wins: We Only Get Rich By Taking Risks.
Doing the same thing over and over, but hoping for a different result, doesn’t make much sense. We need to make big changes if we want to improve our current money situation. We must learn to handle our money differently.
Most importantly, we need to change how we think about risk. All financially successful people got rich by taking risks. They are successful because they don’t fear risks. They know how to deal with them.
Taking risks means your money is not always safe, unlike money in a savings account. You might not always have a balanced account. But it’s worth it sometimes not to play it safe with our money. Instead, we should invest it in stocks and funds. These carry some risk. But they can give us much more money than a normal savings account. Sometimes, with stocks, this can happen very quickly.
If you don’t want to invest your money in the stock market, many other options are open to you. For example, real estate or “tax liens.” With tax liens, you basically take over someone’s unpaid property taxes. The interest rate for these can be between 8% and 30%. This is much higher than the average savings account interest rate in the USA, which was only 0.21% in 2013.
The higher the chance of making money, the higher the risk. For example, with stocks, there is always a chance that we could lose all the money we invested. But if we avoid all risk from the start, we will definitely not make big profits.
Blink 5 – You Need Patience: Stay Motivated On Your Way To More Money.
The path to wealth is long and hard. Our motivation quickly drops when we face a problem. For example, if a stock we invested in suddenly loses a lot of value. To reach our financial goals, we need to find ways to stay motivated when things go wrong.
Making a list of what we want and what we don’t want is a good way to boost motivation. For example, someone might want to pay off all their debts in three years – that’s what they want. And they find it terrible to live like their parents, with a huge mortgage and constant money worries – that’s what they don’t want. Our personal list gives us a push in moments when we need to remember why we started our journey to wealth.
Another way to stay motivated is to spend money on ourselves for fun, before we pay our bills. This might not sound smart at first. But it helps us see how much extra money we need each month to pay for both. This means paying our bills and getting what we want – like that guitar, a collector’s item, we’ve wanted for a while. When we spend our money on our wants first, the pressure to earn money for our bills increases. This, in turn, makes us think of creative ways to earn enough money to pay for both our bills and our wants.
This method will make us more aware of financial self-discipline. It will help us develop it. Self-discipline is a main quality of financially successful people.
To get motivation from outside, we can also learn more about the lives of rich people like Warren Buffett or Donald Trump. Learning how these people followed their financial dreams despite many challenges will fuel our own ambitions.
Blink 6 – “I Know It All”: Laziness and Arrogance Can Make Even Smart People Poor.
Even being very financially smart doesn’t protect us from traps our own character sets. These traps can make us lose our money.
Laziness and arrogance are two very dangerous obstacles we might face. They stop us in ways that are not always clear.
We often think of laziness as doing nothing. But laziness doesn’t always mean being inactive. It means avoiding tasks that need to be done. Imagine a businessman who works more than 60 hours a week. To an outsider, he doesn’t seem lazy at all. But because he works late into the night, he has grown distant from his family. He has noticed problems at home. But instead of fixing them, he has buried himself in his work. In short: He is lazy. He avoids problems instead of solving them. He will have to face the results, like a costly and painful divorce.
Arrogance can also be a harmful weakness. Financial ruin is often seen as “lack of knowledge plus ego.” This means having poor money knowledge and being too proud to admit what you don’t know.
Arrogance is a very dangerous character flaw when investing. Some stockbrokers use it without caring. They do this to sell more stocks and earn more money for themselves. Stockbrokers can be like dishonest used-car sellers. They praise our ego, only show the good parts of an investment, and keep us unaware of the flaws.
Even if you become a financial genius, watch out for the traps set by your arrogance and laziness. They could ruin you financially.
Blink 7 – Plus and Minus: Assets and Debts Are The Basics of Wealth.
It’s important to know the difference between assets and liabilities to make good investments. An asset is simply something that brings us money. A liability is something that makes us lose money.
Clearly, we are more likely to get rich if we invest most of our money in assets. Assets include businesses, stocks, bonds, mutual funds, income from real estate, promissory notes, and notes related to intellectual property. They also include anything else that first, makes you money; second, gains value over time; and third, can be sold easily.
When we invest in assets, our money becomes like our employees. They work to earn us income. The harder these “employees” work, the better for us. The goal is to make our income much higher than our expenses. This way, we can invest the extra money in new assets. Then even more money can work for us.
Sadly, many investors often confuse assets with liabilities.
For example, a house is often seen as an asset. But actually, it can be one of the biggest liabilities you have. Buying a house means you work your whole life to pay a 30-year mortgage and property taxes.
This has two bad effects. First, a large amount of money is taken from our income each month for the next 360 months. This is a clear sign of a liability. Second, we could have invested those 360 payments in other assets that could make us more money. For example, stocks or rental properties that would give us income.
If you know the difference between assets and liabilities, you can decide well which investments to make and which to avoid.
Blink 8 – Beyond the 40-Hour Work Week: We Build Wealth Through Businesses.
Most people wrongly think their job is how they can get rich. But if you want to get rich, you need to tell the difference between earning a living and having profitable personal businesses.
Our job is what we do for 40 hours a week. It helps us pay our bills, buy food, and cover all our other living costs. Usually, our job has a specific title, like “restaurant owner,” “salesperson,” or something similar.
Our personal businesses, on the other hand, are things we put time and money into to make our wealth grow.
The money from our job mostly covers our expenses. So, we probably won’t get rich from it alone. To become rich, we need to build a profitable business while we are still working our job.
For example, imagine a chef. She went to cooking school and knows all the tricks of her trade very well. Her job – cooking – brings her enough money to pay rent and support her family. But it won’t make her rich. So, she invests in a business: real estate. All the money she saves each month, she uses to buy assets that make income – apartments that she rents out. Another example would be a car dealer who invests his extra income at the end of the month in stocks.
In both examples, the job provides enough money to cover monthly living costs. But only when the extra money is put into a business can personal wealth grow and riches be built.
At first, our job funds our personal businesses. So, it makes sense to keep this job until our business grows steadily.
Once that happens, our assets – not our job – become our main source of income. And that means true financial freedom.
Summary
The main message of this book is:
Because schools do not teach us financial intelligence, we must learn it ourselves. With a high financial IQ and strong drive, we can one day become rich and financially free. Investing in our mind is what helps us succeed most, because our brain is our most important asset in any money situation.
What you can do now:
If you want to reach your goal, start right away.
First, read books about your areas of interest, like real estate or stocks. Also, find out who the important people are in the market you want to enter. Do these people have a website you can follow? When will their next book come out? Other general websites like Investopedia.com offer very good information for beginners. These are for people who are unsure how to invest their money. You must learn a lot about your investment options. This will help you truly understand the market. This way, you will also succeed in the long run.
Create a monthly income and expense report.
It is very important that your income is more than your expenses. To make sure of this, you need to watch your money carefully. Use a program like Microsoft Excel to update monthly balance sheets.
Track your income – all the money that comes to you each month. Compare it with your expenses. These are bills, rent, living costs, taxes, and all other money taken from your income. Also, get a clear view of the money your assets make each month. And know what debts you have. This way, you can find out which expenses you can cut. This will help you increase the positive difference between your income and expenses.
Connect with people who do what you want to do.
Make connections with people who are already successful in the market you want to join. These valuable contacts can help you a lot in the long run.
Source: https://www.blinkist.com/https://www.blinkist.com/de/books/rich-dad-poor-dad-de