Rich Dad Poor Dad by Robert Kiyosaki
To celebrate and kick off National Book Month, October, I will be personally reviewing a few of my favourite books of personal finance and investments, some of the books I consider to be fundamental in the financial personal development of a person.
Rich Dad Poor Dad has been reviewed countless times. The idea of the author, Robert T. Kiyosaki, was brilliant: to teach those who have not been blessed to be born into wealth, to learn the basic principles of growing and building stability and richness.
One of the concepts discussed in the book is that of the “rat race” we encounter ourselves in. Study hard, get a degree, get a job, work hard, retire happy… Ring a bell?
It is uncanny how many people follow this; however, nowadays this is not necessarily the only thing a person must do to become wealthy. Society coerces individuals into believing you must be in the rat race to succeed. You don’t.
In order to be successful, you must not succumb to your peers and emotions. Two of those emotions are fear and greed. Fear of not getting money to buy the things you desire, and greed to buy the things you do desire. If you let these two emotions rule, Rich Dad will tell you that you are much more likely to become and remain poor.
This is the main reason why you must train your financial intelligence, as the book states. If you find that to be true, then why not subscribe to F.S. Finance on YouTube for regular articles on topics that will help you rule your money, instead of letting the money rule you!
Unfortunately, school just won’t do it. School teaches you Science, Mathematics, English and other languages, History and a plethora of other subjects – and yet it fails to address investments, accounting, and other crucial topics that would allow you to better understand and work towards financial freedom.
The author states that the building blocks for wealth are financial self-education – this is, learning finance by yourself, through books, classes, courses, etc. And a realistic appraisal of your finances. This can be done through the knowledge I have taught you in previous articles: budgeting, the financial life cycle, among other units that could help you better structure your personal money.
Rich Dad Poor Dad
Rich Dad Poor Dad is Robert's story of growing up with two dads — his real father and the father of his best friend, his rich dad — and the ways in which both men shaped his thoughts about money and investing. The book explodes the myth that you need to earn a high income to be rich and explains the difference between working for money and having your money work for you.
In the 20th Anniversary Edition of this classic, Robert offers an update on what we’ve seen over the past 20 years related to money, investing, and the global economy. Sidebars throughout the book will take readers “fast forward” — from 1997 to today — as Robert assesses how the principles taught by his rich dad have stood the test of time.
Besides structure, another good thing to have is a more adventurous mindset. Kiyosaki says that you must be ready to take risks if you want to make money, and this is not wrong! There is a very interesting theory in investments, called the Modern Portfolio Theory. It states that the higher the risk, the higher the returns – and this is pretty much the general consensus within the financial community.
Of course, the volatility that comes with a risky investment can be strenuous, and therefore staying disciplined is of paramount importance. The road to wealth is long, and therefore you must focus on remaining motivated. Rich Dad says that one way to achieve this is through a list of “wants” and “don’t wants”. In other words, it tells you to state things such as “I want to have a 5 bedroom home”, and “I do not want to lose my car”. This will, in turn, help you focus on the reward/punishment motivation that is so effective on millions of people.
"Inside of every problem lies an opportunity"
Nonetheless, many individuals still succumb to their personality pitfalls. Two traits will doom you: laziness and arrogance. In laziness, we find those who ignore the issues at hand – i.e. tasks that should be done, and yet are not being done. In arrogance, we find those who will not admit to a lack of knowledge due to their pride and ego. Both of these things, either combined or alone will ultimately destroy your ability to succeed.
Another point to consider is to avoid liabilities – especially bad debt such as credit card debt to pay for trivial items – and to invest in assets, like equity-shares and debt securities. Assets grow in value and give you money; liabilities suck cash out of your personal bank until you are drained – at least, if you give them the chance to.
This leads us to our next point, which is the profession versus business war. Your profession will pay for your bills, and help you live life. Your business will grant you freedom and independence. What is the distinction, however? Your profession is your job, what gives you a salary at the end of every month, or your weekly wages. Your business is the assets you own – assets that generate income such as dividend shares and bonds, to be more specific.
However, a person might not be able to purchase these income-generating assets if they are left with very little disposable income – this is, income after taxes and basic expenses. As such, Rich Dad teaches us that in order to maximise our wealth, we must educate ourselves regarding the tax code of the country we live in. By reducing your tax liabilities, you will have more money at the end of the month and be able to make more money in the long-run.
A combination of the points that I have mentioned is what composes the book Rich Dad Poor Dad, with of course some added personal knowledge from me. Thus, if you want to become financially independent, start now!