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Rich Dad Poor Dad by Robert Kiyosaki is a book about personal finance that has sold over 44 million copies.
The book is a great introduction for those who want to expand their knowledge of personal finance and improve their financial education
Do you want to know the top takeaways from this book that’ll make you more financially literate?
Look no further because, in this post, I’m giving you the top 5 tips from the book.
These tips could help you achieve financial freedom and potentially change your life.
Poor Dad
Before we dive into the tips, I need to give you an introduction to Kiyosaki’s two dads.
His poor dad, or his biological father, graduated from Standford with a Ph.D. and carried the traditional view on work and making money.
He feared risk and taught Kiyosaki to go to school, get good grades, get a good job, and climb the corporate ladder.
Most people fall into this category of thinking as well. The majority of people are workers who work for money.
Rich Dad
Next up is Kiyosaki’s rich dad. This person was Kiyosaki’s childhood friend’s father.
Rich dad dropped out of high school to build his own business, eventually accumulating a massive amount of wealth.
He said to work for money in the beginning if you have to, but to continue learning about financial literacy.
He taught Kiyosaki everything about financial education and how the rich people manage their money.
Kiyosaki’s rich dad is also responsible for giving the five tips in this book.
Rich Dad Tip #1 – Know the differences between assets and liabilities
Many people don’t know the difference between an asset and a liability because schools don’t teach about it.
These terms do not only apply to businesses, but to every single person in the world. We all need to learn how to distinguish between the two to be financially smart and well-off.
Assets
An asset is something that puts money into your pocket.
Examples could include stocks, bonds, rental properties, businesses, etc. One of the easiest ways to acquire assets is by investing in index funds. It’s the most passive and easiest way to build generational wealth.
Keep in mind, you’re going to need a strategy to buy assets. You can’t just start buying assets without a plan in mind. The 3-fund portfolio is one of the easiest ways to acquire index funds as assets.
An asset puts money into your pocket by providing an additional stream of income or increasing in value after purchase.
Liabilities
A liability is something that takes money out of your pocket.
Examples of liabilities include cars, clothes, smartphones, and your home.
“Wait, I thought my home is an asset?” Nope. According to Kiyosaki, your home is not an asset, it’s a liability.
Think about all the expenses you pay for your home. Your home takes money out of your pocket in the form of taxes, a mortgage, insurance, and maintenance.
However, your home could be turned into an asset by transforming it into a rental property. By doing your due diligence, you could learn how to collect more money from rent than you’re paying in expenses. Lots of people who invest in real estate make money this way.
Back to the topic, many people in the middle class acquire liabilities they think are assets. They work hard, buy more liabilities, and get more into debt.
The main point is, the rich invest their money by buying assets that’ll put more money into their pockets. The poor invest their money in liabilities they think are assets. They acquire more debt such as consumer loans and credit card debt.
How the rich spend money
If you take a look at the chart above, you can see that many people in the middle class buy liabilities that lead to expenses.
On the other hand, while the rich obviously do have expenses just like anyone else, they keep investing their money into more and more assets which in the future will generate more wealth for them.
Rich Dad Tip #2 – The rich don’t work for money, they make money work for them
Don’t misinterpret this as the rich not having to do any work. The rich do work, they just don’t work for money.
I’m not sure if you’ve ever noticed, but no one on the Forbes Billionaire List got to where they are on a salary. The rich never get rich by getting paid higher salaries.
They get rich by owning assets and investments.
You cannot become rich by simply working, and selling your time for money, because it’s not scalable. There are only 24 hours in a day, and only so many hours you can work.
However, owning assets and investments is definitely scalable. The things you own could work for you, making you more money.
Does this make sense?
To reiterate, the rich don’t work for money, but they work by building a system that allows their money to work for them.
Think about how Jeff Bezos or Bill Gates run their companies. Instead of themselves working for money, they hire other people to run the company for them. The people they hire do the hard work to earn profits.
You probably won’t be able to own a company like Amazon or Microsoft overnight, but you can learn how the system works, then create something valuable like a small business and hire others to run it for you.
Rich Dad Tip #3 – How much money you keep is more important than how much you earn
This is one of the easiest but most important lessons you can learn when it comes to building wealth.
Lots of people only save what they have left over at the end of the month. They pay their expenses, splurge a bit on some luxuries, and throw whatever is left into a savings account.
Let’s say for example you make $5,000 every month but only manage to save around $250. That’s only 5% of your income!
Imagine how much money you could save if you increase your savings to 20%, 30%, or even 50%.
Learn how to track and budget
If you’re aspiring to be rich, you need to learn to control your spending. You can start by tracking your expenses and seeing where most of your money is going.
Use an Excel spreadsheet or a mobile app to track your expenses.
Some major categories you can consider using are:
- Rent/Mortgage
- Groceries
- Eating Out
- Transportation/Car maintenance
- Clothes
- Houseware
- Subscriptions
The reason why you need to learn how to budget is that investing costs money. It takes money to make money, and you need to start from somewhere.
If you’re always spending all the money you make, you won’t have any left over to invest.
Rich Dad Tip #4 – The greatest asset you have is your mind
Many people spend most of their time trying to impress their bosses, busting their butts on the job for that next promotion.
But what about you?
When was the last time you took care of yourself? I’m not talking about being lazy and doing nothing all day. You’re obviously going to need to do a good job at work to pay the bills. But you also need to take care of yourself while you’re at it.
I’m sure you’ve heard of the phrase, “invest in yourself.” It means investing some time to take care of yourself to make your life better. Take some personal time off to focus on yourself, even if it’s just an hour a day.
Here are some ways you can start investing in yourself.
Advance your education
There’s always something to learn. All the smart people in the world say they never stop learning, and that’s how they get all their knowledge.
- Go for a higher degree
- Read a book
- Attend workshops or conferences
- Watch TED Talks
All of these are great ways to advance your education and feed your mind.
One of my favorites is reading books. Books are filled with knowledge because you can learn a lot about the lives of other people and how they overcame their problems.
Fuel your body
While it’s also important to feed your mind, you can’t forget about your body. You only get one body in your lifetime so don’t neglect it.
- Eat healthily
- Stay active
- Get 7-8 hours of sleep
These are simple tips that everyone knows but yet many fail to do. Giving your body the right nutrients and rest is a game changer. You might not see the benefits in the short term but in the long term, your body will thank you.
Learn a new skill
Another thing you can try doing is tapping into your creative side. Everyone is good at something, and you’ll never know what you’re good at until you try something new.
- Learn how to cook
- Learn a new language
- Write an e-book
- Learn how to play a musical instrument
- Paint
- Enjoy the outdoors such as hiking, going to the beach, or gardening
- Teach a class
I can go on and on. There are so many things you can try learning. Who knows, you might end up with a new favorite hobby.
Rich Dad Tip #5 – Corporations are taxed less than individual employees
Last but not least, the final takeaway from this book is what Kiyosaki mentions about taxes and corporations.
It may not be the most applicable takeaway for everyone, but it’s definitely something everyone should be aware of.
Did you know that the average American works for four months just to make enough to pay taxes? That’s crazy!
Individual employees are taxed at the highest rate, while corporations pay much less in taxes.
How, you ask? Let me explain.
Let’s say both you and a corporation make $100. Let’s also say that you and the company want to buy a car that costs $60 and are both taxed at 40% for simplicity.
The IRS deducts taxes from your paycheck before it hits your bank account. However, a corporation gets taxed after they spend on business expenses.
Therefore, the company will get to buy the car with pre-tax dollars, while you have to buy your car after you’ve already been taxed.
Can you see how large corporations can pay less in taxes? Since they are taxed after they spend money on expenses, they have “less” income, therefore, are taxed less.
If you ever successfully start your own business, setting up an LLC or a C Corp will allow you to do the same.
Why do individuals get taxed more than corporations? That’s unfair!
It’s pretty unfair how corporations get to pay less in taxes. But it wasn’t always like that.
Taxes were originally made for the rich. However, the rich were smart enough to get away with paying less by finding loopholes in the law.
In Old England and the U.S., many middle class and poor people were anti-tax (just like today). They believed rich people should be taxed the heaviest. Everyone believed in the Robin Hood Theory of economics: take from the rich and give to the poor.
Because the majority of people were middle class and poor, the majority voted to tax the rich the heaviest.
And it was like that for a while. However, governments got greedy, and taxes slowly started to trickle down to the middle class.
Because rich people know the law well, they use their knowledge to decrease risk and avoid taxes.
For example, the rich used corporations to decrease risk during the days when ship sailing was popular.
A corporation is like a legal body without a soul.
The rich people would put money into a corporation to help finance a voyage. The corporation would then hire a crew to sail to the new world to find treasures. If the ship were to get lost at sea, the rich would only lose however much money they invested into the corporation.
The rich aren’t evil, it’s just that they know how to take advantage of the law using their knowledge. You can also do the same by starting an LLC or a C Corp.
Conclusion
Rich Dad Poor Dad is a great book to start your journey on personal finance. It opens a new world about money you’ve never thought of before and offers some great tips.
Although it doesn’t go into too much detail, it still explains the concepts that the rich use to keep getting richer.
It’s definitely an eye-opener, and I highly recommend reading this book if you haven’t already.
I hope you enjoyed the five takeaways from this book!