PDF Summary:Rich Dad Poor Dad, by Robert T. Kiyosaki
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Rich Dad, Poor Dad is one of the best-selling financial books in history, selling over 35 million copies. The premise: when growing up, author Robert Kiyosaki had two dads advising him: 1) a Stanford-educated PhD who followed traditional career thinking and was financially illiterate (the Poor Dad, his biological father); 2) a high school dropout who built a business empire employing thousands (the Rich Dad, his best friend’s father).
The two dads are a parable for two different approaches to wealth: Poor Dad recommends getting a secure job with good benefits and retiring with a pension. Rich Dad recommends amassing assets that make money for you, becoming financially literate, and practicing independent thinking.
In this book, learn how to achieve financial independence, why it’s a terrible idea to see your home as your biggest investment, and how to overcome the biggest mental blocks to becoming wealthy.
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- Example: buying a house as your primary investment. This viewpoint is problematic because it gets people to buy more house than they really need. A more costly house vacuums up money with high monthly expenses - money that could have been put more profitably elsewhere.
Real assets are businesses that don’t require your active management; stocks, bonds, and other securities; income-generating real estate; and intellectual property generating royalties.
Think about each dollar as your employee that works 24 hours a day tirelessly to make you more money.
The tradeoff between today’s expenses and future income should be clear. Every dollar you spend today is a dollar that does not work for you again, in perpetuity.
Lesson 3: Reduce Taxes through Corporations
Kiyosaki advises that people set up corporations to deduct expenses without paying taxes. (Shortform note: This is a controversial suggestion because it can easily go wrong if you don’t follow tax guidelines.)
The major thing worth noting here is that corporations let you deduct legitimate business expenses pre-tax, instead of paying from post-tax dollars.
Lesson 4: Overcome Your Mental Obstacles
Even if you have Rich Dad goals, you still need to execute your plan. Several common mental obstacles get in the way. We’ll address each one:
Self-doubt
- In the real world, more than just intelligence and grades is required. Guts, chutzpah, balls, daring, tenacity, grit are different names for the factor that plays a huge role in success.
- When you recognize a great opportunity, you must have the courage to chase it.
Fear
- Fear of losing makes you play it safe and avoid opportunities that can have huge upsides and relatively low downsides.
- Remember that failure will only make you stronger and smarter. Use your failure to inspire yourself to become a winner. Use this thinking to lower the perceived cost of failing.
- Fear of ostracism prevents people from having nonconsensus opinions. As it relates to finance, it’s in 1) not bucking the consensus traditional way of handling your career and money, 2) keeping up with the Joneses and matching their irresponsible spending. Focus on yourself and your personal goals, regardless of what other people think.
Laziness
- Counterintuitively, busy people are often the most lazy. They stay busy as a way of avoiding something they don’t want to face.
- Consider someone who’s moving all the time and brushes off investment opportunities as, “I’m working hard enough as it is, and my boss wants me to do more work. I don’t have the time.”
Guilt for Feeling Greedy
- Condemning greed might be a trained defense, learned helplessness. “I don’t know how to become rich. So I’m just going to try to believe being rich is bad, and there’s valor in not wanting to be rich. Even though secretly I would love to be rich.” It’s easy to imagine parents feeling this, then teaching it to their kids.
- Instead, embrace your greed. Money is empowering, and you have the right to design the future life that will make you happiest.
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.
- Don’t feel a trade is underneath you. Some people have an allergy to learning sales techniques, without realizing that much of the world runs on sales of some sort.
Lesson 5: Develop Financial Intelligence. Keep Learning
Financial intelligence consists of knowledge in accounting, investing, markets, and law.
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.
Knowledge compounds in a scary way. Making yourself 1% better each day will pay off huge returns compared to someone who stays static. And the faster you can iterate your knowledge, the faster the returns compound.
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PDF Summary Shortform Introduction
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Rich Dad, Poor Dad has some advice that can be interpreted irresponsibly and lead to disaster.
- Robert Kiyosaki advises people to start their own corporations and pay for expenses pre-tax. He implies that they should be legitimate business expenses, but doesn’t clearly define this.
- He likes the Texan attitude: “if you’re going to broke, go big.” This can provoke disproportionate risk-taking for the uninformed.
- Even if people follow his guidance, he always has plausible deniability with, “it’s not my fault you didn’t learn more and make better decisions.”
Robert Kiyosaki seems to lean toward the libertarian. He has standard anti-taxation, anti-entitlement, pro-gold-standard party lines.
- For example: “The real world is simply waiting for you to get rich. Only a person’s doubts keep them poor.”
Again, despite its flaws, the book has useful things to say. So try to focus on the principles we’ve extracted and what you can take away.
Finally, Rich Dad, Poor Dad is obviously a book about making more money. Most people, whether they admit it or not, would like more money. More money can mean more available options, greater freedom, and less stress. One can...
PDF Summary Introduction: Rich Dad and Poor Dad
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But the traditional thinking is still common. Rich Dad, Poor Dad aims to shake readers out of their current passive path and taking a proactive strategy to building wealth and working for their best interest. Figure out what to do with money once you earn it, learn how to keep people from taking it from you, and make the money work for you.
Rich Dad, Poor Dad explores differences between the two dads on a few levels:
- Mindset: how responsible each felt for financial literacy and proactively making good financial decisions
- Strategy: how they allocated their income among assets and liabilities, how they perceived risk
- Tactics: how they set up their income to lower taxes, what investments they make
What Rich Dad and Poor Dad Say
Rich Dad and Poor Dad look at the world differently. Here are quotes and perspectives taken from throughout Rich Dad, Poor Dad that exemplify their different mindsets and approaches to wealth.
| Poor Dad | Rich Dad |
| Be employed by a company. Climb up the corporate ladder. | Own the company. Own... |
PDF Summary Learning with Rich Dad
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After laboring for 3 hours over 3 weekends, Robert Kiyosaki gets upset and wants to quit. His friend is amused, since Rich Dad expected he’d want to quit, and wanted to meet afterward.
Before the meeting, Poor Dad advises the author to demand what he deserved - at least 25 cents an hour. If he doesn’t get the raise, Poor Dad counsels, Robert Kiyosaki should quit immediately.
Kiyosaki takes Poor Dad’s advice, and starts the meeting demanding more money, demanding to be treated better, threatening child labor lawsuits, and complaining the Rich Dad hasn’t taught him anything. Rich Dad replies: “Not bad. In less than a month, you sound like most of my employees.”
Rich Dad’s point of the exercise is this:
- Most people accept jobs with lower pay than they deserve out of fear - fear of not paying their bills, of being fired, of not having enough money, of starting over. Fear governs their emotions around money, and they become a slave to working to make money.
- Life pushes everyone around. Many people quit and let the pushing happen. Some get angry and push back, but in the wrong direction - against the boss, their job, their spouse, or the world. Others learn the...
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Learn more about our summaries →PDF Summary Lesson 1: The Rich Don’t Work For Money - Money Works for Them
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Cashflow Diagrams
To picture this, here’s a simple financial diagram from Rich Dad, Poor Dad on how cashflow and balance sheet relate to each other:
The top box is an income statement, measuring how much income you get in a period, and how much expenses you pay out.
The bottom diagram is the balance sheet. It shows how much in assets and liabilities you have. Assets are things that make money over time. Liabilities are something that spend money over time. (Shortform note: these are Robert Kiyosaki’s terms and don’t follow typical GAAP accounting.)
We’ll get more into distinguishing assets vs liabilities in the next section, but the main point here is that wealthy people use their Income to buy Assets that return more Income. Meanwhile, they minimize their spending on Expenses and buying Liabilities, to have more money to buy more Assets. Here’s what that looks like:
People who don’t become rich either spend all their income on expenses, or buy liabilities that increase their expenses but don’t...
PDF Summary Lesson 2: Buy Assets, Not Liabilities
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* (Shortform note: also, loading too heavily on your house concentrates risk on your local real estate market. And if you’re subject to groupthink, you’re more likely to think buying a house is a great deal precisely when it’s actually not.)
- Many people buy a new house every number of years, each time incurring a new 30-year loan without really truly owning the house.
Shortform Explanation
Kiyosaki doesn’t address that people obviously have to live somewhere, and paying rent would also be an expense. And, typically, the monthly mortgage payment is lower than the monthly rent of the home, which is where people often get tripped up.
A proper analysis would compare the long-term outcome of these two options:
the cost of buying a home, including the down payment, annual expenses, and likely appreciation of home value
renting an identical property, increases in rental costs in proportion with home value appreciation, and investment returns of the extra cash from not buying a home (e.g. down payment) over time
But Rich Dad, Poor Dad isn’t great about these tactical details - one of its major failings. Going through the exercise, neither...
PDF Summary Lesson 3: Reduce Taxes Through Corporations
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Say your corporation makes $100 in income. Your car is used for business, so the corporation pays $60 for the car. The corporation then has income of $40. After a 40% tax, this ends up being $24. This profit can then be distributed to shareholders as a dividend.
- (In reality, this would be taxed at a 20% corporate rate and 20% personal capital gains rate, but I use 40% to better compare with the pre-tax situation above)
Here’s another way to phrase it: In the company, the $60, if it wasn’t spent on the car, would have been taxed as income. After the 40% tax, this is equivalent to $36. So it basically cost you $36 post-tax to get the car service, rather than $60 pre-tax, leading to a $24/$60 = 40% discount.
Again, be very careful with this. This isn’t a limitless buffet that you can transfer all personal expenses to. Make sure you understand what counts as a legitimate business expense and what creeps across the line to personal expenses.
Lower Tax Rates (allegedly)
From the book: “the income-tax rate of the corporation is less than the individual income-tax rates.”
Shortform Explanation
Superficially, this is true: in 2017 and before,...
PDF Summary Lesson 4: Overcome Your Mental Obstacles
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Rich Dad says he like Texans, because “when they win, they win big. And when they lose, they lose big, and it’s spectacular. If you’re going to go broke, go big. Don’t admit you went broke over a duplex.” Even though the South lost at the Alamo, they handle failure fondly, shouting, “Remember the Alamo!”
(Shortform caveat: of course, taken to the extreme with an uninformed person, this can cause excessive risk taking and catastrophic losses.)
Fear of Risk
Don’t be afraid of turbulence or risk. “I’d like to, but I’m due for promotion in three months” is the classic excuse. There is always another carrot dangled ahead of you, and so there’s always a good reason not to do what you really want to do.
Fear of Rejection
Don’t be afraid of rejection. Fear of ostracism prevents people from having nonconsensus opinions. As it relates to finance, it’s in 1) not bucking the consensus traditional way of handling your career and money, 2) keeping up with the Joneses and matching spending. Focus on yourself and your personal goals, regardless of what other people think.
If you fear all of these things, you can still be rich. But it requires a wiser, more...
PDF Summary Lesson 5: Keep Learning All the Time
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This doesn’t have to be difficult or intense. Robert Kiyosaki mentions jogging through his neighborhood to spot which houses were listed for sale for longer than others, and making low-ball offers for these houses.
The more you learn and the more experience you get, the more money you make, which gives you more chances to learn even further. The faster you can iterate your knowledge, the faster the returns compound.
Learn Broadly
Many people with great talent in their trade aren’t rich. They’re specialists and proud of it.
Often, they just need to learn and master one more skill to dramatically boost their income.
- Analogy: How many people can make a better hamburger than McDonald’s? Most people would think so. Then why does McDonald’s make more money than they do? Because McDonald’s has mastered a business system, while most people focus on building a better hamburger.
Notable examples of underappreciated skills include sales, marketing, communication, negotiating, investing, people management, and financial intelligence.
- Consider taking a pay cut to work at a firm where you’ll gain a critical orthogonal skill - like marketing at an ad...
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PDF Summary Lesson 6: How to Get Started
... They provide valuable information and take time to educate you.
Hire professionals who know what they’re talking about, and have skin in the game. An attorney who personally invests in real estate will be more helpful for your real estate matters.
Don’t short-change your brokers. Why would they want to hang around you if you’re not being fair?
You’ll be comfortable paying them better when you value your time and understand the value of what they give.
7. Buy assets that generate free money.
Find a way to put in money and get it back, then get free money into the future. Kiyosaki relates this to “Indian giving.”
Example: Buy a cheap house with cash, use rent to pay it off, and the house now generates money forever.
Sophisticated investors ask, “how fast do I get my money back?”
8. Buy luxuries with income from assets only.
You must resist the temptation to spend any extra money you get. This requires fortitude.
Do NOT borrow money to get the things you want. Focus on creating money.
9. Find your personal hero. Emulate their behavior.
Learn how they make decisions, and how they got to where they are.
When negotiating, Kiyosaki “acts with the bravado...