Book Review – Rich Dad Poor Dad
How to Make Money Work Instead of Working for Money
Written in a simple language, this book explains how middle class and the poor get trapped in the vicious cycle of living from paycheck to paycheck delicately balancing income with expenses and taxes, sometimes even loosing balance. It explains complex accounting and financial principles in simple language. It paves way for investment newbies to get educated, explore, experiment, and take advantage of opportunities abound.
Basic Concepts of Investment
In chapters 1 and 2, the author shares his childhood experiences in understanding the perspectives the rich and the middle class have towards money using the teachings of his own dad, who, he says, is a middle class government employee, and his friend’s dad, who is a businessman and rich.
In chapter 3, he explains the basic principles of finance and accounting. Concepts like cash flow, assets, liabilities, income statement, and balance sheet are explained using simple diagrams. He explains the importance of building income generating assets. This excerpt explains the importance of investing in financial intelligence: “If you are going to build the Empire State Building, the first thing you need to do is dig deep hole and pour a strong foundation. If you are going to build a home in the suburbs, all you need to do is pour a 6-inch slab of concrete. Most people, in their drive to get rich, are trying to build an Empire State Building on a 6-inch slab.”
Being Smart with Money Earned
In chapter 4, he explains the distinction between working for oneself – “minding your own business” and working for others. He explains the importance of cash flow using this valuable point: “An important distinction is that rich people buy luxuries last, while poor and middle class tend to buy luxuries first.”
In chapter 5, he talks about how middle class keep paying taxes, never matter how much more they earn. He talks about the power of a “personal corporation”. He reiterates that wide knowledge in accounting, investing, market awareness, and the law constitute financial IQ. He says, the biggest difference between rich and poor is that the rich with corporations earn, spend, and finally pay taxes on the amount left, but people working for corporations earn, pay taxes, and so left with less to spend.
Gaining Financial Intelligence and Cultivating Good Habits
Chapter 6 talks about opportunity and financial intelligence. Don’t wait for the opportunity to knock the door. Instead create opportunity and be on the lookout. He says, “It’s like waiting for all the traffic lights to be green for 5 miles before starting the trip”. Investing in gaining financial knowledge is the greatest investment. See with your mind what others see with their eyes. “It is what you know that is your greatest wealth. It is what you do not know that is your greatest risk”. In chapter, he stresses the importance of an open mind in learning about investing from any possible source.
In chapter 8 he talks about the possible obstacles that hinder people from investing and how to be successful by overcoming them. In the last two chapters he lists potential steps to take and good habits to adhere to in order to start investing and be successful.
Benefit From the Investment Best Seller
This book is an eye-opener for people new to investing in real-estate and stock market and is a great source of inspiration. It does not provide with "How-to" instructions, rather it provides "Why-to" & "Why-not" reasoning. Experts in investing may find this book trivial and just commonsense.
Rich Dad Poor Dad – What the Rich Teach Their Kids about Money That the Poor and Middle Class Do Not! By Robert T. Kiyosaki with Sharon l. Lechter, C.P.A (Business Plus, 1997)
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