Rich Dad Poor Dad – Still relevant?
This classic book was written by personal finance author and lecturer Robert Kiyosaki. He draws on his life experience and explains how his perceptions about money were developed and how that enabled him to create a vast wealth and portfolio of million dollar assets.
He describes two very different influences – his two fathers. His real father, much like many of us was highly educated, held a PhD, but was financially poor. Yet his other father (his best friend’s dad), dropped out of school but became a self made millionaire. His educated (poor dad) struggled with money his entire life, yet like many parents pushed the same advice on to Robert: go to school, get a job, save, get a pension and retire. However Robert observed his rich dad ignore the ‘play it safe’ advice, and grow a fortune worth millions of dollars. He describes the lessons he drew from both dads, that have since become the foundation of personal wealth creation, and have been retaught all over the world. With these lessons Robert was able to retire at age 47.
This book was originally published in 2000. So the question is, are these lessons still relevant in 2019?
I personally found this book to be a great inspiration. I first read it very early in my medical journey (FY1). I have since re-read this book and listened to it on audible, so my feelings about this book may be obvious. Nevertheless this book generated its fair share of critics. I too have my own gripes with this book. Whilst this book is not a step by step guide to personal wealth creation, it is an excellent introduction to personal money management, written in the style of a parable. Its written in plain and easy to understand English. The author is clearly targeting the financially illiterate, which many professionals (especially doctors and nurses) are. Rich Dad Poor dad attempts to change the way we perceive money. For example, Robert Kiyosaki redefined an asset. He stated that an asset is anything that generates cash flow. So for the first time a notable financial voice told people that their homes were not necessarily an asset, as mortgage payments etc. actually costs them money, rather than generating income.
Whilst parables may be interesting and even inspiring to read, many will be asking what useful financial information lurks within the confines of this book, and what can I implement to actually affect change. I will do my best to summarise and review the lessons, and see if these are still valuable today.
The Rich Don’t Work for Money
At first this concept is confusing and somewhat misleading. But it later becomes clear, and is perhaps the most important principal to actually achieve financially security. Essentially what he is saying is the rich work differently. The rich in fact work extremely hard. However they don’t work for money. Instead they work to learn things, then leverage what they have learned to make money, usually multiple times over. Whilst its perhaps a principle of the poor to work more to earn more. I say this because there are only so many hours in the day, and therefore this is an unlikely route to wealth. I therefore found this to be a simple but extremely important lesson.
Its also somewhat impressive that throughout the book Robert refers to his Rich Dad being poor (at least in the beginning). It was his attitudes towards money that lead him to create multiple successful businesses. Then even with a great wealth he did not purchase the trappings of the rich e.g. sports car, mansion, boat etc. I like this too, because this is a confirmation that being poor is not simply a reflection of your bank balance, but more a mentality. It is a behaviour of the poor to earn money and spend it, hence if Rich Dad had a poor mentality he may have spent it on a Ferrari and lavish vacations.
Why Teach Financial Literacy?
Essentially in this chapter Robert Kiyosaki is stressing the importance of life long financial education. He introduces controversial but very useful concepts.
Here he redefines an asset. He states that an asset is anything that generates income, and that a liability is anything that costs money. This concept was initially controversial but seems to be the new norm. Though your home can be an asset in general it is not because it doesn’t generate income. Assets are forms of passive income such as property rentals and intellectual property. Essentially Robert Kiyosaki is stating the key to creating wealth is a life time of accumulating assets. Financial independence comes when you have enough income from your assets to pay for your expenses and still pay for new assets.
Mind Your Own Business
This was a short but punchy lesson. He advises against spending your earnings away on frivolities. Instead you should initially use your earnings to pay off your debts as quickly as possible. You should then be spending your spare time researching and looking for investment opportunities to get involved in as soon as possible. The key is to generate cash flow.
The History of Taxes and the Power of Corporations.
This section is perhaps more relevant to the US audience. Nonetheless there are important lessons here. In this section the author talks about setting up a corporation and organising your expenses to make them tax deductible. He is perhaps slightly far fetched however and talks about expensing your Porsche as a tax deductible company expense, which I think would be difficult to justify to your auditors. He discusses more tax dodges that are likely common place in rich corporations. Whilst this may not be possible for us all, the principle remains; owning a business and keeping your money in a business structure does make far more tax sense than operating solely as an employee.
The Rich Invent money
This section begins to sound braggy, and perhaps somewhat unrelatable today to most, just starting out with wealth creation. He talks about making tens of thousands of dollars in a mater of hours on real estate deals. Whilst there still is good money to be made in real estate, it requires large capital, considerable research and time. Furthermore, it is no longer a secret, and therefore you will also be competing against other investors, real estate agents, property developers, foreign businesses etc., its therefore not as easy today to snag an exceptional deal as it may have once been.
Nevertheless, once again this lesson can be applied today. I believe that we are living in an era for creators. Intellectual property is one way to literally “make money”. If you can create content (e.g. blogs, videos, music, podcasts, websites etc.) that can be distributed and monetized successfully you too will have “invented money”.
Work to Learn – Don’t Work for Money
As doctors, lawyers, physiotherapists and other young professionals this will perhaps be the most uncomfortable chapter to read. This section did cause Robert Kiyosaki some backlash. He insults and belittles those who chose to seek employment, referring to them as “hamsters”. Essentially the author pushes a message he seems to have been peddling his whole career. In 1993 he published a book called ‘If you want to be Rich and Happy Don’t go to School’. I find this somewhat ridiculous. Firstly, many of the worlds millionaires are employees, and being employed does not mean a life condemned to being unhappy. This is therefore a slightly simple and closed minded view. Secondly every modern society needs graduates and employees otherwise it could not function. So some jobs are filled with extremely talented and well trained individuals who jobs are more important than just money. Without doctors, teachers, nurses, surgeons, politicians, accountants, etc. where would we be?
I therefore feel that whilst there are lessons to be learned from this section, its should be read with a pinch of salt. I’m slightly sceptical that the author pushes this message to achieve notoriety, cause controversy and therefore gain attention. If so, it has worked. Just remember studying and gaining qualifications will put you where you want to be, you can then either work and be fulfilled as an employee, or even use your years of experience to create your own business or service. So don’t be too disheartened by Robert Kiyosakis message in this section, as I initially was reading this as a young debt ridden doctor.
Conclusion – Should you buy this book?
Most of the concepts in this book are still relevant today. They are however an introduction to personal wealth, and can be found in many books. If you are a young professional who has never thought about money and what to do with it, this is certainly an excellent place to start your personal financial education. Essentially the message is save money and purchases assets that will eventually produce income that will pay for your liabilities, whilst allowing you to purchase more assets, and hopefully give up employment. Its an inspirational tale with a few key gems, that I most certainly still subscribe to. Though I recommend this book and still feel it’s a must read for all young financially illiterate professionals (which included myself), it is not a guide, and provides no advice for specific steps to take, and the path he took would be very difficult to emulate today. Where this book perhaps gets its biggest cynics is its sometimes aggressive dislike for formal education. Nonetheless its well worth the read even in 2019. Thought I have not yet read it, I have recently stumbled across your money or your life, which is haled as an alternative to Rich Dad Poor Dad. Critics say it teaches the same fundamental lessons of minding your own business with more concrete and more specific examples that you can follow.
- Is this book still relevant today? – YES
- Who is it for: Beginners in personal finance