This Book will change the way you think about money!
If there is a book that I would recommend any person who wants to learn about personal finance, it would be this. I believe it is one of the best books on personal finance in the market out there. Why do I think so? This is because it is written in a very easy to understand language, which any person not having a finance background can. The way it goes on explaining the difference between asset and liability, I highly doubt anyone has done it. When you read it from the book, this explanation would most probably be stuck with you for the rest of your life. So, without further ado, let’s get into the book review of Rich Dad Poor Dad by Robert Kiyosaki.
If you are interested in watching the video version of this book review, you can find it on our YouTube channel: https://youtu.be/s8aJ6HTu5gI
The plot is set up during the author’s childhood days, where he often faces contrasting financial advice from his father, who is a hard working middle class family man, and his friend’s father who happens to be running multiple businesses, and a self-made millionaire, but also is a dropout from school.
For the rest of the book, the author addresses his friend’s father as Rich Dad, while his own father as Poor Dad, hence the name of the book, Rich Dad Poor Dad. This book is totally about the difference in mindset about money between the rich and the poor and middle class. I guess most of the people reading this would have been brought up with this mindset: Study hard, get good grades, get a job, marry, have kids, teach them to follow the same. This is what the author calls the Rat Race.
We are never taught about financial literacy – be it in the school, or even from our parents. This is a lesson which we should learn if we aspire to get wealthy. The author makes it pretty clear: If you follow Poor Dad’s advice, most likely you’ll end up running the rat race; whereas, if you follow Rich Dad’s advice, you enter the Fast Track of building wealth.
As Indians, we tend to be hardworking and discussions of money are very rare. This mindset is what the author is trying to change via the lessons he learnt from his Rich Dad. There are so many differences between Rich Dad and Poor Dad which the author highlights in the book. First up, his father depended on a single source of income throughout his life, while his friend’s father had multiple streams of income.
TIP: Depending on a single source of income is risky. Always try to build multiple income streams.
The explanation of income statements and balance sheets of the poor, the middle class, and the rich was one of best ways to teach anyone how to handle their finances (image below). He defined an asset as something which puts money into your pocket and liability as something which takes money out of your pocket. As simple as that! The rich buy assets. They acquire assets through their income, while the poor buy liabilities from their income. Most people think that their home is an asset. Right? Wrong! Your home is a liability as it takes money from your pocket via your loan installments.
If you understand this, you are on the right track!
The biggest difference between the rich and the poor: The poor work for money, while money works for the rich. Here comes the introduction of a new term: passive income. What the poor and the middle class do is that they trade their time for getting money. As you have limited time, you’ll be earning a limited amount of money. This is the case of active income. While the rich don’t trade their time for getting money. Instead, money works for them. This means that irrespective of what they are doing, they continue to earn their money. How is this possible? This is the power of acquiring assets. Now these assets can be ownership in business, stocks, bonds etc. These will keep on working hard and giving you your money, no matter what you are doing.
If you don’t find a way to make money while you sleep, you’ll work until you die. – Warren Buffett
Another difference that is starkly brought forward by this book, again using the examples of Poor Dad and Rich Dad is the difference between academic literacy and financial literacy. The two are often mistaken for one another, or even worse, the former is often considered to be the cause of the latter, but this couldn’t be further from the truth. While our entire higher education system is solely geared towards providing students with well paying jobs and careers, nowhere are they taught what to do with this money once they start earning it, and thus starts the cycle of collecting liabilities and running the rat race right from the moment one is out of college.
One doesn’t need to be an academic wiz in order to have sound financial acumen, a point that is strongly emphasized in Rich Dad Poor Dad by Poor Dad having the highest of academic qualifications from Stanford University and Rich Dad being an eighth class dropout. Both worked hard at their careers and were very successful in their respective fields. The difference in their financial conditions was not due to the resources or opportunities that life gave them, but in their respective mindsets. While the Poor Dad would say that “the love of money is the root of all evil”, the Rich Dad believed that “lack of money is the root of all evil”. While the Poor Dad believed that making more money would solve all his financial problems (sounds familiar!?), the Rich Dad believed that it is not the amount of money you make that is most important, but what is more important is how much of it you can save and what you actually do with it.
This is the book which has completely changed my mindset of how I think about money, and I guess it will change yours too. Most of the later chapters are related to US Tax Laws and Corporations, which are not that relevant in the Indian market. But, all in all, if you give Rich Dad Poor Dad a read, it has the potential to change the way you think about money and might even impact the financial decisions that you will be making in the future. I believe this review would have encouraged you to get your copy of Rich Dad Poor Dad and get out of the rat race to find your own financial fast track!