Rich Dad Poor Dad Book Summary [2021]

Rich dad poor dad is one of the finest books revolving in the financial industry written by Robert T. Kiyosaki, which emphasizes financial education.

This book has sold over 40 million copies worldwide and has remained as a New York Times bestseller.

This book gives you a clear picture of the famous question – Why do the rich become richer and the poor become poorer?

 It also shifts your mindset to a completely new financial perspective. 

You will be able to absorb how money works in real life. It also tells – How you can make better money-making decisions and grow your net-worth with time, enjoying the lifestyles you dream of. 

In short, this book is the first book any financial intellect can read.

And for you, I have given Rich dad poor dad summary in the best form i.e in the blog here so that you don’t have to read the book again.

Introduction 

The author Robert in the beginning introduces to two fathers he had – his father and his friend Mark’s father who had contrasting views. 

Robert’s dad was highly educated, intelligent, had a Ph.D., and yet did not have enough financial education.

While Mark’s dad never finished the eighth grade but yet very smart in making financial decisions. 

Both men were strong, charismatic, and influential, offered advice but they were different from each other.

While one dad said “The love of money is the root of all evil” the other dad said, “The lack of money is the root of all evil”.

One of the main reasons why the rich get richer and the poor get poorer is that the subject of money is taught at home and not in school. Schools focus on professional skills and not on financial skills.

One dad  says “I can’t afford it” while the other dad says “How can I afford it?” The former statement stops the brain, the latter question makes the brain work to achieve it.  

Poor Dad

Rich Dad

“Love of money is the root of all evil”

“Lack of money is the root of all evil”

“I can’t afford it”

“How can I afford it?”

“Study hard to find a good company to work for”

“Study hard so you can find a good company to buy”

Doesn’t talk about money over a meal

Talks about money and business at the dinner table

Plays safe

Manage Risks

Pays bills first

Pays bills last

Struggles to save few dollars

Creates investments

Teaches to write a good resume

Teaches to write good business plans

“Money doesn’t matter”

“Money is power”

Focuses on job security

Focuses on learning 

What you can observe from the above table is that the poor dad was poor not because of the money he earned, but because of his thoughts and actions.

Key Takeaway: “Money comes and goes but if you have the education about how money works, you can start building wealth” 

Rich dad poor dad cover photo

Chapter- 1.  The rich don’t work for Money

Both Robert and Mike become rich, they go to Mike’s father to seek his advice on how to make money. His father tells them 3 important points.

  1. Poor and middle-class people always work for money because of fear and greed, the fear of not paying their bills makes them work for 8 hours a day, once they get their paycheck they tend to spend more which makes them work again and the pattern is set.

  2. On the contrary rich people always think of making more money from their earned money, they try to automate their business so that even if they are not present money is credited to them.

  3. A job is a short-term solution to a long-term problem – You can’t become rich by doing jobs, you can only maintain your family. Ask yourself “Is there any other way to make money?”

Never forget that fear and desires can get you to life’s biggest trap. Don’t think about the bills at the end of the month instead if you are doing a job find an opportunity which can pay you some more money for your skills.

Most people who are looking only for money or security never look for alternative methods or opportunities of making money. 

Key takeaway: Use the emotions of fear and desire in favor of you and not against you. 

Chapter- 2.     Why Teach Financial Literacy

In this chapter, Robert tells the reason for the rich becoming richer and the poor remaining poorer.

He says unless you have good financial literacy, you tend to make bad decisions about your wealth.

You must know about assets and liabilities, to become rich. Liabilities are anything that takes money from your pocket (like a credit card, car-loan, home-loan) whereas assets put money in your pocket (Like stocks, bonds, rental property).

These two things mainly differentiate between rich and poor. The riches keep increasing their assets by keeping liabilities to a minimum, whereas middle-class people increase their liabilities thinking these are their assets and the poor only have their expenses.

So your main takeaway from this Rich dad poor dad summary should be, you must increase your savings to invest in assets and reduce your expenses on liabilities.

Our assets are like planting a tree. You water it for years and one day it doesn’t need you anymore. It provides shade for your enjoyment. 

It’s not how much money you make, rather how much money you keep. 

Robert went forward saying the house is a liability and not an asset as many people believe due to three reasons.

  1. Loss of time during which other assets would have grown. 

  2. Loss of additional capital spent on maintenance and repayment of loans that could have been invested.

  3. Houses don’t always go up in value. 

If you still want to buy a house, first buy assets that will generate the cash flow to pay for the house. 

Once you understand the difference between liabilities and assets, make efforts to buy income-generating assets.

R. Buckminster Fuller says “Wealth is a person’s ability to survive so many days forward – or if I stopped working today, how long could I survive”?

In other words, wealth measures how much money your money is making. 

Key takeaway: Have a goal to have excess cash flow from your assets reinvested to your asset column. With this, you’ll grow richer and richer.

Chapter- 3.     Mind Your Own Business

Financial struggle is often the result of people working all their lives for someone else.

Many people forget their own business and try to mind somebody else’s business and make that person rich.

To become financially secure, start minding your own business. keep your daytime job in case you don’t have other options but start buying assets, not liabilities that have no real value once you get them home.  

Middle-class and poor people don’t afford to take risks, cling to their jobs, and play it safe.

Robert suggests buying these assets

  • A business that doesn’t require your presence

  • Stocks

  • Bonds

  • Income-generating real estate

  • Notes (IOU)

  • Royalties from intellectual properties.

Acquire assets that you love because if you don’t love them, you won’t take care of them.

There would be risks but that risk is diminished if you know what the investment is, understand it, and know the game.

The main problem with the majority of the middle class and poor people is that they want to look rich as soon as they start earning some money. They buy new cars, houses, and luxuries on their credit card or salary, whereas the rich prefer to buy luxuries at last from the income generated through the asset columns.

Once a dollar goes into your asset column, make sure it never comes out. That dollar becomes your employee, it works 24 hours a day for generations. 

Key takeaway: Keep your expenses low, reduce liabilities, and diligently build a base of solid assets

Chapter- 4.    The History of Taxes and the Power of Corporation

         In this chapter, Robert explains how the poor let the tax system exploit them with their complex structure. Because they lack Financial IQ, they don’t have other options but to pay multiple taxes on everything from their account.

Government employees get paid to spend and hire people. The more they hire the larger the organization becomes and more tax is needed to run it. 

Capitalists keep their organization small, spend less money, and hence respected by investors.

True capitalists find their financial knowledge and build a corporation to escape from paying taxes. 

A corporation is merely a file folder with legal documents in it with a State government. The tax is smaller than that of individual taxes. 

Rich people hire smart attorneys and accounts as it’s less expensive than to pay the government and they persuade politicians to change laws and create loopholes. 

People who don’t take advantage of these legal tax savings are missing a great opportunity to build their asset column. 

With money comes great power that requires the right knowledge to keep it and multiply. 

If you work for money, you give them the power to your employer. If money works for you, you keep the power and control it.

However, the rich have money working for them, they spend the money on creating corporate businesses to protect and enhance their assets. They have the advantage of letting their business earn money, spending on things it wants, and then taxed on the remaining amount.

Rich capitalists use their financial knowledge and power to escape the complex legal taxation structure.

Financial IQ is made of knowledge from four broad areas of expertise

  1. Accounting: ability to read numbers

  2. Investing: the science of money making money

  3. Understanding markets: the science of supply and demand

  4. Law: awareness of corporate, state, and federal regulations which will prevent you from being exploited by the Government and Taxes.

Rich dad poor dad summary-coin in hand

Chapter- 5.   The Rich Invent Money

         Robert says, in the real world, it is not smart who gets ahead but the bold. You must be a risk-taker sometimes to gain astronomical rewards.

What’s stopping us is not the lack of technical knowledge but the lack of self-confidence we have.

Working hard to become rich is just an old option. Doesn’t work anymore. 

If you don’t work on increasing your financial intelligence, unknowingly you will end up paying more and more taxes.

The land was wealthy 300 years ago. Later wealth was in factories and production and today it is in the form of information.

In this era, humans work purely with their minds and not with their bodies. 

Old ideas are the biggest liability because they fail to realize while that idea of doing something was an asset yesterday, yesterday is gone.

The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth seemingly instantaneously.

An untrained mind can also create extreme poverty that can crush a family for generations.

The reason rich people become richer is that they train themselves to invest and make more money from earned money itself. 

And the main reason for the majority of the people remaining poor or middle class is:

  • They are terrified of losing and do not take risks.

  • They do not train themselves about finances or learn the required skills.

 
  • Do not have proper financial planning or control over their expenses.

People prefer secure investments but the problem with “secure” investments is that they are often sanitized, that is, made so safe that the gains are very less.

The idea in anything is to use your technical knowledge, wisdom, and love of the game to cut the odds down and to lower the risk. 

He encourages us to invest in financial education than in stocks, real estate, or other markets. The smarter you are, the better you can play. 

There is always a risk, so learn to manage risk instead of avoiding it.

There will be technological changes, market booms, and crashes, but you need to develop financial intelligence continuously and never stop.

  1. Find an opportunity that everyone else missed

  2. Learn to raise money. The majority of people let their lack of money stop them from making a deal. If you can avoid that obstacle, you will be millions ahead of those who don’t learn those skills. It’s what you know more than what you buy. Investing is not buying. It’s more a case of knowing

  3. Organize smart people. Intelligent people are those who work with or hire a person who is more intelligent than they are. Choose your advisor wisely. 

Chapter- 6.   Work to Learn – Don’t Work for Money

         Under this rich dad poor dad summary, this chapter talks about the skills individuals should have to achieve financial success.

For poor dad, job security means everything while for rich dad learning meant everything  

You must recall that Financial intelligence is a cocktail of Accounting + Investing + Marketing + Law. When you combine these four skills, making money becomes easier. 

When Robert came out with his first book, his friend suggested keeping the name of the book as “The economics of education” which would have hardly brought him sales but he kept it as “If you want to be rich and happy, don’t go to school” to sound controversial.

The reason why Robert did it was that he had learned the art of sales and he wanted to be controversial and get free publicity for his book.

Robert joined Xerox Corp only because they had the best sales training program in America. Before then he was in the Marine Corps to learn to lead men. 

He worked in Xerox until he overcame the fear of knocking on doors and being rejected.

“Workers work hard not to be fired, and owners pay just enough so that workers won’t quit” 

Robert recommends young people to seek work for what they’ll learn rather than what they’ll earn. Choose what skills you want to learn. 

The world is filled with talented poor people. They learn the skill of making the best hamburgers but not the skill of advertising and selling. McDonald’s does it the other way. 

The better you are at Communication skills such as writing, speaking, and negotiating the easier life is.

Robert advises us to spend a year learning to sell. Even if we earn nothing, our communication skills will improve which is priceless.

Knowing a little about a lot is what a rich dad believed in while a poor dad believed in developing just one skill.

Poor dad always said he’ll give to charity when he has extra money. But the extra money never came. Rich dad believed in “Give and you shall receive”. 

Learn how to manage cash flow, people, and the system to get rich.

Chapter- 7. Overcoming Obstacles

The author talks about five main reasons which stop an individual to gain huge wealth and make them financially free. 

The 5 reasons include:

1. Fear 

The primary reason between a rich person and a poor person is how they manage fear.

Fran Tarkenton says “Winning means being unafraid to lose”. 

So for most people, the reason they don’t win financially is the pain of losing money is far greater than the joy of becoming rich. If you hate risks and worry, start early. If you start young it is easier to be rich.

Don’t do what the poor and middle class do, that is to distribute your few eggs into many baskets. 

Instead, put a lot of your eggs in a few basket and FOCUS – Follow One Course Until Successful

Building your asset column is a game in which attitude plays a major role. 

2. Cynicism (self-doubt)

A good investor knows that the worst times are actually the best times to invest. 

Most of them fail to take action because they take advice from family members or friends or neighbors instead of experts.

When speaking of the Stock Market they say “I don’t want to lose money” instead of even trying to understand what it is. 

3. Laziness

Most of them are lazy by being busy. 

If you want to exit that rat race, ask yourself “How can I afford to never work again?”

We all desire a better life. You cannot progress without having a little greed.

4. Bad Habits

Your asset column is more important than anything else. 

So pay yourself first and then pay the bills.

When you do this you become stronger financially, mentally, and fiscally.

5. Arrogance

When you realize you are being ignorant in a subject, start educating yourself.

You can do that either by finding an expert or a book on the subject. 

Chapter- 8.  Getting Started

 

This chapter insight you with the guide to building personal wealth. The author gives five suggestions to follow in the process of becoming rich.

  1. You need to have a stronger reason or purpose for money and choose your investments carefully. Decide when you want to retire.

  2. Our spending habits reflect who we are. Invest in education as your mind is the biggest asset and the most powerful tool. 

  3. Make good friends who can help you with finance and investments. Although making friends on financial status is not said, do not take advice from your poor friends.

  4. In today’s continuously changing world what matters is how fast you learn and not how much you know. Master the skill of learning.

  5. You must learn to pay yourself first. This is true self-discipline which is extensively spoken in the book “ The richest man in Babylon”

  6. You must pay stock-brokers well if you want some good advice. When they make money, you too make money. 

  7. Whenever you feel short of something, give what you want first and it will come back in buckets. This is the power of getting something from nothing which Robert calls an Indian giver.

  8. Keep your expenses low, and build your assets first and then buy luxuries in return if you want.

  9. Keep learning and reading about heroes in your field of expertise. Robert reads about Donald Trump, Warren Buffet, Peter Lynch, George Soros, and Him Rogers to tap into a tremendous source of raw genius.

  10. Teach and you shall receive. If you want to learn about money, teach it to someone else.   

Chapter- 9.  Still, Want More? Here are some Do’s

The author adds that you must stop doing things that seem not viable. Start learning different books, keep exploring new ideas, learn, and implement.

 He encourages learning by taking classes, attending seminars, or online materials that are free and inexpensive. Or read about the successful person in your industry for it is rightly said, the more you learn the more you earn. 

If you want to become big, think big. The greatest book written in the 20th century is called “Think and Grow Rich” and not “Work hard and grow rich”

Final Words:

 

Now that you have read this rich dad poor dad summary, you must have sound knowledge about managing your finance and expenses. 

You might have started thinking of building your assets and reducing your liabilities and expenses.

No learning is beneficial unless you start taking any actions no matter how small steps you take towards saving or investing. If you can start It, you can build it.

Becoming rich is not rocket science rather it is taking better decisions and following good investment habits.

You must build 3 different types of income: Ordinary, Portfolio, and Passive. Ordinary income is what you earn from your work hours. Passive income is what you earn from your side hustles or real estate investments. Portfolio income is income from paper assets like bonds and stocks.

Portfolio income is what makes Bill Gates, the richest person in the world. The key to becoming wealthy is the ability to convert ordinary income into passive and portfolio income as quickly as possible.

Taxes are highest on ordinary income. The least taxed income is passive.

So try to convert ordinary to passive and portfolio. We wish you the best to achieve financial freedom.

What are your Key Learnings from this wonderful book – Rich Dad Poor Dad. Do let us know in our comment section.

Also Read:

1. Think And Grow Rich | Napoleon Hill | Book Summary

2. The Business of The 21st Century | Robert T Kiyosaki | Book Summary

 

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