For full disclosure, I'm not someone who subscribes to the idea that there is a one-size-fits-all way to become wealthy. For one, being "wealthy" is subjective because it is a comparative idea. What one thinks is wealth, another might see as average, depending on each person's perspective. However, what this book describes is the difference in mindset between his biological (or poor) dad and his friend's dad (who was very wealthy). The poor dad was very educated while the rich dad never completed the 8th grade. However, due to the rich dad's financial literacy, he ended up being much more financially successful.
From this book, I wanted to share three things I learned that may also help you make better financial decisions in your life.
This first concept is one of the most important concepts Mr. Kiyosaki stresses throughout the book. What the "Middle Class" describes as an "asset" the "rich" understand to be a liability. To simplify this, Mr. Kiyosaki says that "An asset is something that puts money in my pocket," and a liability is "something that takes money out of my pocket."
1. Most People Believe Their Liabilities are Actually Assets
For example, what most people believe to be their biggest "asset," their house, Mr. Kiyosaki argues is almost entirely a liability. There are intricacies to this, because some people rent out a room or two of their home.Therefore, they make their home an asset that pays for their mortgage or even better, pays for their mortgage AND puts money in their pocket. The chart below is what Mr. Kiyosaki uses in his book to more visually describe what "the rich" view as an asset vs. what the "Middle Class" or "Poor" believe to be an asset.
As you can see from the chart, assets contribute directly to income while liabilities take directly from income and turn into monthly expenses.
2. The Three Types of IncomePart of understanding the previous chart is understanding the three types of income about which Mr. Kiyosaki writes.
The three types of income are as follows:
1. Earned Income
2. Portfolio Income
3. Passive IncomeEarned income is the typical income. Someone gets up, goes to work, and gets a paycheck. Portfolio Income is any income, dividends included, that someone earns from the purchase and sale of stocks, bonds, etc. The third type of income is Passive Income, or income that is earned from owning an asset, such as rent from a piece of real estate you own. The biggest lesson Kiyosaki emphasizes, with regard to income, is the transition of earned income into portfolio and passive income. By using earned income to buy assets, such as real estate, one could quite possibly rent out the real estate and earn income on top of earned income, while also having the specific property appreciate. What's better than having someone else pay for you to increase your wealth?!
3. Don't be a Cynic, Do Your Research!One thing that really caught my eye was Robert Kiyosaki's take on cynics. Again and again he talks about friends who have, at one time or another, criticized his decisions to go to real estate seminars that seemed expensive, but ended up making him millions of dollars. He also mentions various friends who have asked for his help and taken his time, only to back out of a deal that would have made them a significant amount of money, due to others telling them that it's very risky.
His point isn't to say that every deal is a win or that there isn't any risk to an investment. Part of investing is the understanding of risk (and how much you're willing to take). However, what he does recommend is staying diligent and doing your research. Don't simply take someone's word that a specific investment is a "sure thing," but, on the other hand, don't always believe someone who says it's a sure fail. In short, do your research and be patient!
There are MANY more lessons Mr. Kiyosaki teaches, and I just scratched the surface on the three I mention in this post. If you would like to read Mr. Kiyosaki's book, I HIGHLY recommend it! Here's a Link to the book on Amazon. The book is pretty cheap, but it's definitely worth a read!
Thank you for reading and please leave any comments or questions you may have at the bottom! I hope you have found my posts to be helpful! Best of luck to you and your personal finance goals!