The Rich Dad, Poor Dad book by Robert Kiyosaki is an international best seller and has become inspiration for anyone who wants to improve his or her understanding of how money works. The book tells the story of the author’s two fathers and their very different attitudes to money. Robert’s real father is the so-called ‘poor Dad’ while his friend’s father was ‘rich’, despite both earning a good salary. Robert takes us on a journey that uncovers how he realised wealth depends more on the actions you take with the money you do have, then it does with how much you earn. The lessons he teaches encourages the reader to first adopt a positive attitude towards money because it is your mind-set that leads to positive actions.
Here we will go into 4 financial lessons learnt from the book that can help you positively build your own wealth and retire in comfort.
1. Make money work for you
Robert highlights the general wisdom that most of us know deep down; better to have the freedom to do as you wish by receiving passive income than having to work for your money hour after hour at your employers office. What is important is the journey you go on remembering to always think strategically in regards to your money looking to build more income than expenses.
The key lesson here is to master the control of two emotions: fear and desire. Fear is a strong emotion and it is normally what motivates us to get out of bed in the morning, commute into an office, and earn a paycheck. Money however is essentially a man made illusion. It is our desire to buy ever increasingly extravagant consumer goods that drives us to reach for that pay rise.
To change this behaviour the writer’s ‘rich dad’ teaches the young boys in the story to stop thinking about obtaining a wage and security, and start thinking about how to generate money for themselves. The argument is most people are so consumed with security and the next salary jump they miss opportunities right in front of them. Once you change your perspective the world presents opportunities to generate wealth that can be done ethically and for the long-term.
2. Manage your money
Making good decisions with your money is no ground breaking lesson, but what most people fail to appreciate is that financially successful people focus on saving money and not spending it on luxuries until they can actually afford them. Over the last 30 years it has become very easy to not only spend your own money but also end up in debt. A common trap that many people fall into is focusing on obtaining possessions that communicate the illusion of wealth when in reality they are living paycheck to paycheck.
The story teaches the simple lesson; assets are things that bring money into your life, whereas liabilities are things that take money away from you. To underline this point the story educates the reader that the house you live is a liability as it generally costs you money every month despite most people thinking of it as their biggest asset.
Assets are described as things that actually generate money, such as rental properties. By limiting your liabilities you can grow your assets by focusing on acquiring and building a portfolio of assets that bring in passive income, which in turn, will eventually provide financial freedom.
Robert identifies the key problem for many is not that they don’t make money, but that many don’t know what to do with it once they have it, how to stop people taking it from you, and how to securely deploy money to make it work for you.
3. Pay yourself first
This lesson may seem a little strange at first, maybe even irresponsible, but there is logic. Rich Dad Poor Dad states that when receiving their monthly salary both fathers behaved was quite differently. Poor Dad would pay off all of his bills right away and live off whatever was left. By contrast Rich Dad would pay himself first and use what was remaining to cover his expenses.
Although it seems like poor decision Rich Dad knew that sometimes we all need to be motivated into taking action and not becoming too comfortable with just getting by. He found that by creating a little bit of pressure in his own life his creative thinking would take over and he would looks for ways to cover the bills.
Now we are certainly not advocating that you should go on a shopping spree and spend the money you need to cover your bills. But put yourself into the position mentally of looking for ways to diversify your income over and above what you need for essential living. Financially savvy people tend to have multiple sources of income from property to a balanced financial portfolio. Looking and thinking about opportunities is a great skill to learn.
4. Know when to be bold
Our trusted author Robert lays out our fourth lesson, which we believe is one of the most important. Most people never reach financial freedom not because they aren’t intelligent or capable, but are too afraid of losing or failing.
As humans we lean by first failing or making mistakes, it is this process that often teaches us the right way to do something. The truth is, you don’t have to be a genius to obtain financial success and multiple high-level qualifications wont guarantee you will be wealthy if you don’t take the time to understand how money works and have the will to take a bit of calculated risk.
Again, we are not saying people should go out there and risking it all on the first thing they see. The skill is to be clever about the decisions you make and know when to take some level of risk, learn from previous mistakes, assess the situation for what it is, not what you would like it to be. When the time is right, know when to leverage your money to take a calculated risk to maximise your future returns.
Robert Kiyosaki finishes the book by encouraging the reader to always look to improve their lives by consciously identifying and changing bad habits, and to always keep learning. The book is an excellent way to get started on the journey to creating a stronger, happier financial life while remaining ethical and true to your own values.