RICH DAD POOR DAD

The book 'Rich dad Poor dad' by 'Robert Kiyosaki', provides a very strong inspirational insight to become financially strong. It helps us to overcome the old beliefs about money & education and clear all the obstacles in our path of becoming rich. Let's start with the summary of the book.  

Introduction

The author explains the role, his two father's played, in shaping his financial intelligence. 

•To one, he calls 'Poor dad' (his own dad) .He is not poor in terms of earning money, though he earned enough, but still he struggled financially. He is highly educated and always asked his son to study hard and get good grades to find a secure job in good company. 

•Other one is 'Rich dad'. He was not educated enough but had financial knowledge and so never faced money problems. 

Although both gives importance to education but of different kinds. 

•Poor dad wanted his son to have enough education so that he can find a secure job in good company. However rich dad believed that we should learn the skills so that we can open his own company.  

Advices given by rich dad-: 

I) Become financially literate 

Three basic financial skills :- 

1)Know the difference between assets (something that generate cash flow in future eg stock, bond, real estate) and liabilities (takes away money from our pockets in future eg loan, credit cards etc). 

•So the rule is simple, spend money on buying assets not liabilities. More money doesn't solve problem if you keep spending them on liabilities.

• After building your assets, next goal is to reinvest cash flow from assets to buy more assets and keep expenses less than current cash flow from these assets. Continue this reinvestment approach to become rich. 

• Buy luxuries from the income you have earned from assets not from your hard earned job/business income. 

2)Develop your financial IQ 

Financial IQ is made up of knowledge from 4 broad areas. So learn them properly; 

a) . 

3)know the difference between 3 kinds of income ; 

3 kinds of income 

1) Ordinary income - earned from your profession 

2)Portfolio income - earned from stocks and bonds etc. 

3) Passive income - it's like the one that is earned from real estate. 

• To become wealthy, one should have the ability to convert earned income into passive or portfolio income as quickly as possible. 

•Taxes are highest on earned income and lowest on passive income. 

• For passive and portfolio income, money work for you. And ordinary income is when you work for money. 

• You should know what kind of income to work hard for. Otherwise, you will spend your life earning less than you could and working harder than you should. 

• Two important tools with you are your mind and time. The way you use them today determine whether you will be rich or poor tomorrow. 

•Poor only have expenses, middle class buy liabilities thinking that they are assets (like buying house on loan), rich buy assets. 

• Everyday with every dollar, you decide to be rich poor or middle class 

II) Don't work for money, make money work for you. 

•Most people spend life working for everyone else but not for themselves. First they work for company, then for government (by paying taxes), then for banks (who own their mortgages).

•Not everyone wants to learn how to make 'money work for them' simply because no one wants to take risk in matter of money. Everyone finds it more secure to find a job in good company and thus they 'work for money' for their whole life. 

•Fear of being without money motivates us to work hard. Once we get paycheck, our spendings increase and again we struggle financially . Increased income increase spending more and we will be trapped in rat race. Fear and desire keeps us in this trap, otherwise why would we hurry off to work if it isn't any fun. 

•Job is a short term solution to long term problem.

• Schools are designed to produce good employees instead of employers as it teaches us professional skills which help us earn money without teaching financial literacy. Money without financial intelligence is money soon gone. 

• Instead, schools should be the beginning in path of your learning.

•To start - work for free, soon your mind will show you the ways of making money far beyond anyone can pay you. Most people don't get to see these opportunities because they are looking only for money and security. Force yourself to use your imagination to identify an opportunity to make money. Then money will work for you. Single most important asset is mind. Use it creatively to find financial solution.

•Work to learn, don't work for money - once you have acquired the skills you were employed for, leave the job and apply for new one to learn new skill. So that you can use these skills to open your own business. Switching jobs again and again will decrease your short term income but will increase your long run prospects. Rich dad always adviced to develop skills (III)

•Don't just right away start your company for non serious reasons like you can't find employment etc. Do it if you are really into it because many more business flops than the one which flourishes

[Note - working for money means you are employed in a job and money works for you when you are involved in a business] 

How to get started with your financial education 

•Find a strong reason/purpose - These reasons keep you staying and going forward even when you face setback. Without a strong reason, achieving anything in life is hard. 

• Choose friends carefully - don't choose friends based on their financial statement. Learn from all. Friends with money will talk about money, not because they want to brag but because they like the subject. From them, we get to learn 'what to do'. Friends with less money found talking about money rude and unintellectual. Learn from them 'what not to do'.

•Master a formula, then learn new one - We have seen the importance of learning new skills. Put into action what ever you learn, that's where people stop. 

• Pay yourself first -Allocate money first to your asset column before paying expenses. Then the pressure to pay taxes and other expenses is so great that it will force you to seek other source of income. Pressure to pay become motivation. You will be financially and mentally more stronger. If you pay yourself last, you will get weaker.

• Pay your broker well - pay broker well, in case you are in real estate investment. The idea is to pay professional workers well as they make more money for you. They also save your time. Management of people is very important skill and the real skill is to manage and reward people smarter than you, in some technical area. 

• Use assets to buy luxuries - Don't use your savings or job income to buy luxury, otherwise you will be stuck in rat race. 

• Choose your heroes - Heroes inspires us and make things look easy, which convince us to want to be just like them. 

• Teach and you shall receive - if you want to learn about money, teach it to someone else. Don't expect that you will get something in return, by doing this you won't be able to enjoy the joy of giving. You only need to be generous about what you have. 

• Stop doing what you are doing - Take a break and access what is working and what's not. Don't do same things over and over again and expect different results. 

•Focus on your asset column and not on income statement. 

•Own the business that doesn't require your physical presence all the time, otherwise it will become job. For eg real estate, stock, bond etc.

•Start by keeping your day job and own small stock. First understand the accounting and cash management through your job and eventually start your own company. 

What stops us & How to overcome them 

Self doubt 

•All of us have tremendous potential but self doubt holds us back. It's not the lack of technical information but lack of self confidence that holds us back. 

•We all have doubts (like - I am not smart, am not good enought etc). But now is the time to act, if we keep doubting ourselves, opportunities will pass by. The key to success in investment is to start early.

Fear 

•Always remember to have fun, sometime you win and other times you learn. Most people never win because they are afraid of losing. Always Remember, we learn to walk by falling down. People who avoid failure also avoid success. 

•Poor dad always insisted his son to get a secure job as he was terrified that otherwise he won't earn enough money and won't fit in society. 

•Fear of being different prevent most people from seeking new ways to solve their problems.

•Many people didnt like that author made so much money through rent as he didn't has normal salary job. Life is tough when you don't standard profile.

• If fear is too strong, the genius in you is suppressed. Take calculative risks and be bold to let your genius convert your fear in power and brilliance. 

• Don't wait for right opportunity, sometimes you don't have opportunity and sometimes money. But you always have a reason. 

•Most people dont win financially because fear/pain of losing is far greater than joy of being rich. It's like "everyone wants to go to heaven but no one wants to die". 

•There is a big difference between hating losing and being afraid to lose. 

Risk 

•We don't like taking risks especially when it comes to money. But a certain level of risk taking is important if you want to become rich.

•Risk is diminished if you love the investment and you understands it. Eg investing in some startup that you have interest in. Thus it's very important to invest in the areas of your interests.

•Investment isn't gambling if you know what you are doing. It's gambling if you are just throwing money into a deal and praying.

•Risk is always there, so learn to manage it instead of avoiding.  Financial intelligence improves the odds of winning. Thus what is risky for one person is less risky for other. 

•We all can make good money with only high school education yet we don't because we live on standard advice of work hard, secure job, save money, don't take risks.

Laziness 

• Busy people are often the most lazy. They stay passively busy like in watching TV, shopping etc . But deep down they know they are intentionally staying busy to avoid something they don't want to face (like risk). This results in anger. 

• This laziness can be cured by arising within yourself some 'greed'. 

• Rich dad forbade the use of words like :"I can't afford it" as it shuts down our brain and we stop to think anymore. Instead we should use : " How can I afford it?" , Sentence like this opens our brain and force it to think and search for answers.  

Arrogance 

• People use their arrogance to hide their ignorance. It makes them think : what they don't know is not important. 

• Everytime you are arrogant, you lose money. 

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