Rich Dad Poor Dad Summary and Review: Beginners’ Guide on Planning Personal Finance

The book Rich Dad Poor Dad by Robert T. Kiyosaki (first published in 1997) laid the foundation of my thinking of Personal finance when I was young. The first time I read it was in a summer vacation after the college entrance examination. This book opened my eyes to money and investing by looking at the two fathers’ different behaviors.

This book was so popular at that time, especially those born in the 70s and 80s, who first knew “what is financial freedom” from this book. And the main points for me are “buy assets, not liabilities.” or “increase assets, and reduce liabilities.”

Personal finance is a very personal feeling, it can differ from person to person. The book has completely changed my way of thinking about money, and I find that I’ll feel different after rereading it at each stage of my life.

Some friends around me give a low star rating of this book, as they think that the book has not given practical wealth management advice at all.

In fact, the book “Rich Dad Poor Dad” conveys a way of thinking. The reason why rich dad is rich is that he has learned to think, what can be done to accumulate wealth, how to manage money efficiently, so he can earn more wealth than others.

Who is this Book More Suitable for

It can be the beginners’ guide on planning personal finance. Whether you’re a student, just start your job, or a reader with little financial knowledge, it may worth reading. You can also recommend it to your kids to help them have an initial understanding of money, which may not be taught in schools.

It is a simple and easy-to-understand book. Although written 24 years ago, the views mentioned may still have reference value. I personally think that it may help you cultivate good money and investing concepts.

Let us take a look at the most popular phenomena in society in recent years, and some of the topics that many people are most concerned about are:

• continuously rising prices of houses and stocks
• not stable work during Covid-19, you may face unemployment risk

Therefore, I think the book is inspirational because it inspires readers with a new understanding of career, assets, and money.

From my summary, Kiyosaki shares five important lessons that we can learn:

• Lesson 1: Your Attitude towards Money Determines Whether You are Rich or Poor
• Lesson 2: Get Financially Educated: Increase Assets and Reduce liabilities
• Lesson 3: Don’t Work for Money, Let Money Works for Us
• Lesson 4: Start Your Own Business
• Lesson 5: Accounting is Important

Lesson 1. Your Attitude towards Money Determines Whether You are Rich or Poor

The book explains the different financial concepts and therefore different lifestyles of poor dad and rich dad, explaining why the poor get poorer and the rich get richer.

Rich Dad vs Poor Dad

Poor father (his real father) is a middle-class, who has held a Ph.D. in education, works for the government, and has a good salary, but often worries about debts, and doesn’t have much savings.

Rich father (the father of his friend Mike) is his money mentor, who is a successful businessman, only with an eighth-grade education but good at business and makes money. 

So, why is the highly educated father become a poor father, while the father who has not finished high school becomes a rich father? Kiyosaki concluded that it is because of their different views on money.

• Poor dad thinks that “the love of money is the root of all evil”; while rich dad hates poverty and thinks that “The lack of money is the root of all evil.”
• When the poor dad has no money, he will accept; while the rich dad will fight to make money when life pushes him, and he believes in the power of money and knows how to use money, and finally finds a way to make money work for himself.
• The poor dad studied hard to get a good job; while the rich dad studied hard to let others work for himself.
• The poor dad is afraid of taking risks; the rich dad manages the risks.
• Poor dad believes in social security; rich dad believes in economic independence.
• The poor dad tries to save money; the rich dad keeps investing.

Poor father emphasizes school education and suggests his son study hard, obtain a high degree, find a good job, get a stable income, and finally live a stable life. While rich father reckons financial education is the key to life success or financial freedom. 

Obviously, Robert Kiyosaki prefers the latter way, because the former way may eventually fall into the trap of the middle class like his poor father, while the latter way can lead to the rich.

We can see from the viewpoint of Robert Kiyosaki, that “Poor dad works hard in the government for the salary, while rich dad lets others make money for him. It can be seen that the difference in personal finance concepts determines the difference in lifestyle, living conditions, and finally the rich and the poor. If you choose to follow the path of poor dad’s life, you will always be a working man, which means you will always be a poor man.”

Lesson 2. Get Financially Educated: Increase Assets and Reduce liabilities

Kiyosaki introduces 3 typical methods of “increasing assets”: job, entrepreneurship, and investment. For most people, work for others is a common and necessary way. Most of the entrepreneurs are also working for others before working for themselves.

Increase Assets

Like Kiyosaki, I have never received education in personal finance at home or in school when I was young. I thought I was not interested in money until I read the book “The Count of Monte Cristo” by Alexandre Dumas.  I was so excited the moment I read that Edmond Dantès got the treasure, and at that time I realized that I liked money.

Rich Dad Poor Dad helps me schedule my career plans clearly.

In University

When I went to university, I found that the salary of students majoring in economics after graduation was much higher than that of students majoring in other fields, so I attended economics class.

In Work

25-34 Years Old

After graduation, I put the major time into improving my workability during the age 25-34. As I think it is the most effective method to increase assets.

I found that the profit margins of products in my industry were relatively low, so I learned website marketing to get organic traffic from Google for our website to receive more orders. 

In my spare time, I learned knowledge of investment, such as index fixed investment tips, how Warren Buffett buys and sells, etc.

Therefore, at this age, the main way to increase my assets is from work, and a small part of the money comes from investment.

35-44 Years Old

Then, as I grow older, my capability in work may be matured, and funds may have been accumulated to a certain extent. I will gradually reduce time on work and start to focus more on improving investment yield. The result is that the proportion of my “increasing assets” through “investment income” will gradually increase.

In general, at this stage, I mainly have two ways to “increase assets”, that is, “working” and “investing.”

45-50 Years Old

I hope that my “investment income” can fully cover my “daily expenses”, it may be the first stage of financial freedom. The ultimate state is that “the return on investment not only exceeds the “daily expenses”, but also far exceeds the “income from working.”

Reduce liabilities

First of all, we must know what debt is. From the definition in Rich Dad Poor Dad, that all debts that cannot bring you cash inflow are debts.

If you buy a house, the mortgage needs to be repaid every month, which is a liability. However, we should distinguish it is a real liability or a potential asset.

For example, you loan money to buy a house, the house can be called a liability, but if the house price goes up and your house can easily sell out, then such liability can be recognized as a potential asset.

A car is a liability, because from the moment you bought it, the value has been reduced by 1/3, and it usually costs fees (such as insurance and maintenance) to maintain. Similarly, clothes, bags, and shoes are all liabilities.

The rich know how to distinguish between assets and liabilities. According to surveys, the rich and the average middle class have different attitudes towards luxury goods. The rich often use asset income (such as rental income and dividends) to buy luxury goods, while the middle class and the poor will use their savings to buy luxury goods.

Lesson 3. Don’t Work for Money, Let Money Works for Us

Kiyosaki writes: “The poor and the middle-class work for money. The rich have money work for them.”

This is why the poor get poorer and the rich get richer. Under the same conditions, the poor would continue to work to make money, then consume all of it, and then go to work for the money. The rich will also work hard at the beginning, and when the money is not much, they know how to be frugal, and then use the saved money to help themselves make money, which has a snowball effect. 

Money Discipline in Spending

Think of every dollar as an employee who can make money for you, put the money into assets, and they can work for you 24 hours a day. 

So when you spend money, you will think more wisely and ask yourself is it really worth spending now?

This is not to say that we should refuse material consumption. Instead, through this way of thinking, we can properly control the desire to consume and establish the consciousness of letting money work for us. 

When money is for you consistently, you can spend or reinvest. For example, if you can save 1,000 USD with a monthly salary of 4,000 USD when you just graduated; then you can also only save 1,000 USD when your monthly salary rises to 10,000 USD. 

This kind of consumption view will put your financial situation into an embarrassing situation, although you earn much more than before. In this way, you may be unable to seize future investment opportunities.

It’s Not How Much You Make, It’s How much You Keep.

“Money is earned, not saved.” This is the biggest lie I have ever heard in my life. For most ordinary people who earn less money, but how much they can keep is as important as how much they earn. “Saving 1 USD is equivalent to earning 1 USD.”

The biggest financial confusion of people living paycheck to paycheck is “no money to manage”. In fact, they can first set a small goal. 

For example, save 10% of your salary every month. If the monthly salary is 4,000 USD, keep 400 USD a month may not affect your life quality. And you can save nearly 5,000 USD in one year, which is equivalent to a 10% increase in your salary every year.

Don’t underestimate 5,000 USD. You can learn a lot of financial knowledge when you start investing with this small amount of money. 

The wealth of many rich people is accumulated with a small amount of money at first, and then keeps the snowball rolling.

Starting personal finance at the age of 20 is completely different from the age of 30. The most important thing is to cultivate a spirit of self-discipline for money.

I remember in an episode of “Sex and the City”, when Carry had to consider buying a house because of breaking up with her boyfriend, only to find a few hundred dollars in her deposit account. She had spent $40,000 on 100 pairs of Manolo Blahnik shoes, but could not pay $20,000 down payment on a house.

Lesson 4. Start Your Own Business

Kiyosaki doesn’t recommend devoting all your time and energy to work for your boss. He suggests starting your own career. You can temporarily work for a stable life, but better spare time to learn how to make money by building your own business.

“Rich Dad Poor Dad” mentioned that the poor dad encourages Kiyosaki to study hard to obtain a higher degree, then find a good job. However, the rich dad suggested the author run a company by himself and hire professional employees to work for him.

Although at this point, I don’t fully agree with the rich dad’s point of view, I agree that try to start your own business, not just a job as you can forecast the ceiling of your job after 35 years old in a company.

However, entrepreneurship requires comprehensive abilityies (e.g. accounting, investment, marketing, law, advertising, sales, communication skills) and not suitable for everyone. If you are a person with lifelong learning, your ability will definitely be continuously improved and may start your business soon.

Take Risk

Kiyosaki says: “It’s not the smart who get ahead, but the bold.” “People who avoid failure also avoid success.”

There is almost no way to make more money that is not risky (such as stock market and real estate investment). You can complain about the risks and refuse to try. You can also try to take the risk after improving your knowledge and experience.

As long as you continue to make progress, learn, and grow, the future is full of possibilities.

Lesson 5. Accounting is Important

Kiyosaki says in the book that “Accounting is possibly the most confusing, boring subject in the world, but if you want to be rich long-term, it could be the most important subject.”

Anyone who has played the rich dad poor dad cashflow game (also developed by Kiyosaki) knows that there is a rat race and a fast track in the game. The purpose of the game is to jump out of the rat race, enter the fast track, and enjoy a rich life.

Only those who are good at accounting and investment can escape the trap of “rat race”. It can be said that these are the two most important capabilities to achieve financial literate.

For personal finance, keeping accounts is a way to quickly know accounting principles and understand your financial status. The bookkeeping mentioned here must use double-entry bookkeeping, and many bookkeeping software on the market now uses double-entry bookkeeping.

Double-entry accounting means that every income or expense must be recorded in terms of debits and credits. For example, if you take out 5 USD from your wallet to buy ice cream, when you keep the account, the debit account should record that the purchase costs 5 USD, and the credit account should record 5 USD ice cream. Of course, these details will be automatically recorded by the accounting software for you, and you only need to set up the relevant account when accounting.

Another thing to note is that we must not only learn to keep accounts, but also understand the ins and outs of it, understand the relationship between the accounts, and the principles behind it. We want to run our finances like a business.

Other Summaries

#1. Yourself is also an asset, and being an asset has the possibility to go up and down. There are only very few people in the world who can “almost” not rely on asset allocation to obtain financial freedom.

#2. In your real life, the amount of cash maybe not much, and most of the businesses that can be invested may have low returns or high risks. So in that case, investing yourself to improve your capability to make more work income may be a good choice.

#3. The book says that assets with positive cash inflow are assets, and those with cash outflows (such as loan interest, maintenance fees, etc.) higher than cash inflows are liabilities, but assets with negative cash flow may also become positive cash flow. For example, selling the assets when the price goes high.

#4. The money spent is not only the money itself but also the benefits that the money may bring.

#5. The borrowed money is not only money and loan interest, but also the income that this money may bring. It is a good choice if the loaned money can bring in cash inflows higher than the loan interest. However, most people do not have such abilities.

#6. Good investment opportunities are not common for ordinary people. Almost any investment with a high annual return may be risky. We should improve our financial knowledge to judge whether it is an opportunity or a risk. 

#7. Good opportunities may occur once in ten years (such as in 2008 and 2020), but if you cannot seize such a chance due to the lack of money, which was caused by spending too much money in your daily life, you deserve to be poor.

#8. Even if there is an investment with a good return, after investing in such a project, it means giving up other better investment opportunities in the future. Investment is not only based on return, but also depends on the possible return gap. 

#9. If you loan money to invest, it is suggested that the loan should be repaid first if the loan interest rate is higher than the return on investment of your project.

#10. The cash flow cannot be broken either for individuals or companies, no matter how many assets you have.

#11. Think Independently. The ability to think independently is important for personal finance. Truth is always in the hands of few people. First, spend time learning the knowledge of a certain project you want to invest in.

Complaints About the Book

A common criticism of this book is that it puts the pursuit of money in the first place.  

The author fails to realize that the goal of most people is to become the middle class, like his poor father. The career of this class is more of achieving self-worth than making money, such as scientists, government officials, lawyers, doctors, skilled workers, and other jobs, who are devoted themselves to make our society better.

Final Thought

Personal finance is a necessary course in our life. If you have received zero education on money in school, you should learn it if you want to be rich in the future.

From my understanding, personal finance is a systematic project, not just investing money, but also about investing your time, education, health, and more.

Hope this Rich Dad Poor Dad summary has inspired you.

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