This article is an excerpt from the Shortform summary of "Rich Dad Poor Dad" by Robert T. Kiyosaki. Shortform has the world's best summaries of books you should be reading.
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Are you looking for tips and advice on how to create wealth, and don’t know where to start?
In Rich Dad, Poor Dad Robert Kiyosaki outlines his philosophy for learning how to build wealth with the ultimate goal of becoming financially independent. In the book, he focuses on how to create wealth for the long term so you can make the most of your money.
How to Create Wealth
In Rich Dad, Poor Dad the author’s goal is to explain how to create long term wealth. These tips come from the book’s lessons and the author’s explanations on how to implement them.
Tip 1: The First Rule of How to Create Wealth—The Rich Don’t Work For Money
After a narrative, Rich Dad, Poor Dad covers Robert Kiyosaki’s major lessons from Rich Dad on how to create wealth.
Most people work 40+ hours a week to earn salaries. Many then take their earnings to 1) buy stuff they think will make them happy (but this is short-lived), 2) save the remainder in a conservative way.
While this ensures some degree of stability, it doesn’t make you rich. And working to earn a pension makes you financially dependent – let alone the risk that pensions won’t be funded decades from now, when you need it.
The counter-intuitive lesson here is this: the rich don’t get rich merely by being paid higher salaries (though this is a great help). They get rich so by owning things. No one on the Forbes billionaire list got there purely with a salary. This is one of the fundamental things to know about how to accumulate wealth.
The key to financial independence is having money that makes more money. You want your money to make enough money that you don’t have to work anymore.
Tip 2: Buy Assets, Not Liabilities
So how do you put your money to work for you and figure out how to create wealth? The key is to buy things that generate income (assets). You do NOT want to buy things that lose money over time or incur large expenses (liabilities).
This is obvious enough. But the most deceptive investments look like assets, but are actually liabilities.
Tip 3: Forming a Corporation
Robert Kiyosaki’s solution? Form your own corporation as one way to figure out how to build wealth. Here are its benefits:
Deductions for Expenses
You can pay legitimate business expenses from pre-tax money, rather than post-tax money.
Say you have a business that buys and sells real estate. To travel to see new properties, you can pay for a car. You have business dinners that you can partially expense. You can have board meetings in exotic locations you would have vacationed anyway.
Tip 4: Overcome Your Mental Obstacles to Create Wealth
More people have the potential to be happy, but common obstacles get in the way. People who overcome these obstacles get a huge advantage on their journey learning how to create wealth. Common mental obstacles include self-doubt, fear, cynicism, laziness, guilt over feeling greedy, arrogance, and lack of money. Here are some examples of how these obstacles can appear:
- Self-Doubt: Self-doubt or lack of self-confidence hold all of us back, to some degree. Some are affected more than others.
- Fear: Fear manifests in a lot of ways, such as fear of losing or failure, fear of risk, and fear of rejection.
- Cynicism: There will always be at least one reason something won’t work. Fixating on these reasons pessimistically will paralyze you from taking any productive step.
- Laziness: Some people feel developing financial intelligence is too much hassle. Consider, would you rather put in some hard work now and enjoy decades of a better life, or suffer through the rest of life?
- Feeling Guilt for Being Greedy: We’ve been raised to think of greed or desire as bad. In reality, self-interest drives innovation and value for other people.
- Arrogance: When you’re ignorant in a subject, recognize this, then educate yourself. Intelligent people welcome new ideas, since new ideas add synergy with other ideas.
- Lack of Money: Many people don’t even start their pursuit with the excuse that they don’t have the money. This doesn’t stop the courageous opportunist from making progress.
5: Keep Learning How to Create Wealth All the Time
Developing financial intelligence pays off huge returns. If your mind is trained well, you can create enormous wealth in what in the grand scope of things is an instant. Learning how to accumulate wealth is an ongoing journey that requires you to adapt.
In contrast, an untrained mind can also create poverty that lasts lifetimes.
Robert Kiyosaki believes financial intelligence is made up of four broad areas of expertise:
- Accounting: financial literacy. Read and understand financial statements.
- Investing: strategies to use money to make more money. The creative piece.
- Understanding markets: understand supply and demand. Can you create something that the market wants? Does an investment make sense under current market conditions?
- Law: use tax advantages and legal protection to build wealth more quickly and reduce risk.
Taken together, financial intelligence allows you to construct creative ways to solve financial problems, vet the ones that are more likely to work, then have the technical ability to execute them.
Consider that spending money on financial intelligence is like buying yourself life – you may save on years of working because of making the right decisions.
Learning how to create wealth is a process that takes time. You don’t suddenly figure out how to create wealth overnight; it’s a process that takes time and strategy, and you can start with the philosophies in Rich Dad, Poor Dad.
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Here's what you'll find in our full Rich Dad Poor Dad summary :
- The key differences in how rich dad and poor dad approached life
- Why it's a terrible idea to buy an expensive house
- How to overcome your own mental blocks to become wealthy for life
