It has been a while since I updated my blog, so it is about time. I have just finished reading Rich Dad, Poor Dad by Robert Kiyosaki, arguably one of the most famous "self-help" books when it comes to money and finances. I particularly liked the blunt and straight-to-the-point writing style of the author. So here is a short review of the book.
Two Dads is Better Than One
The title of the book comes from the fact that Robert was in a unique position to be raised by two "dads", his biological father and the father of his best friend. Both dads had completely different views about money, offering the author unique viewpoint in comparing contrasting values. The "poor dad" believed in working for money, while the "rich dad" believed in having money work for him.
Fear and Greed
One of the first lessons of the rich dad was that when it comes to money, most people are primarily governed by emotions of fear and greed. These powerful feelings are what cause most people to "work for money" all of their lives. Fear because people are afraid of not having enough money and greed because they think of all the shiny things they can purchase with their paycheck. The problem is that when most people manage to increase their income, they tend to increase their spending in same proportion. This cycle is what the book refers to as a rat race.
Assets and Liabilities
Another great lesson of the book is the simplistic definition of assets and liabilities that are easy to understand. The book suggests simply to think of an asset as something that puts money in your pocket while a liability is something that takes money out of your pocket. After understanding what is an asset, then the road to successful financial life is to simply accumulate assets (and avoid liabilities). This is close to my personal investing philosophy as I believe assets which provide a cash flow are far safer than something which relies on capital appreciation alone.
Cash Flow Patterns
The book goes on explain the different cash flow patterns of the poor and the rich. The poor person has no assets and no passive income, so he only earns money by trading his time for it. But he will often have liabilities like car payments, mortgages, credit card payments and so on. The income barely covers the expenses and little to no money is left over for investing. The rich, on the other hand, own assets which provide passive income, and have very little liabilities. This creates a positive feedback loop where income is left over after expenses, allowing to purchase even more assets which create even more income.
History of Taxes
One of the most interesting paragraphs of the book talks about the history of taxation. According to the book, taxes were initially sold to people by taxing mainly the rich. Then gradually taxes were applied to the middle class, and eventually to the poor. Politicians, especially on the left, like to talk about taxes for the rich because they know people are envious of them, but they fail to tell the truth to their constituents. There is not enough rich people to pay most of the taxes, and they have the best opportunities of avoiding taxes like moving their wealth to another country. Thus the middle class, who all politicians from left and right supposedly champion, end up paying most of the taxes.
Study Sessions
If I have something negative to say about the book, I did not really understand the need for a "Study Session" after each chapter. Basically they seemed just to repeat the content of the chapter itself that I had just read. In the end I ended skipping the study sessions altogether.
Conclusions
I would strongly recommend this book and think it is a must read for everyone who is interested in improving their financial life. I will end this review with some words from the book. You were given two great gifts: your mind and your time. It is up to you what you do with both.