What “Rich Dad Poor Dad” Tells Us About Successful Passive Income

Rich Dad Poor Dad is about Robert Kiyosaki and his two dads – his real father (poor dad) and the father of his best friend (rich dad) – and the ways in which both men shaped his thoughts about money and investing. You don’t need to earn a high income to be rich. Rich people make money work for them.

Rich Dad Poor Dad by Robert T. Kiyosaki

The Five Big Principles

  1. The poor and the middle-class work for money. The rich have money work for them.
  2. It’s not how much money you make that matters. It’s how much money you keep.
  3. Rich people get assets. The poor and middle class get liabilities that they think are assets.
  4. Financial aptitude is what you do with money once you make it, how you keep people from taking it from you, how to keep it longer, and how you make money work hard for you.
  5. The single most powerful asset we all have is our mind.

Introduction

Robert Kiyosaki is an American investor, business man, author, motivational speaker and financial commentator. He was born in Hawaii in April 1947 as a son of a hard-working middle-class man with PhD. When he was 9 years old, he attended the same public school as the kids of all the rich people. Since that time, Robert had two dads:

Poor Dad

His biological father had a PhD and a well-paid job. What he learned from him:

  • Use your head, stay in school, take good grade, safe and secure job.
  • Study hard so you can find a good company to WORK for.
  • The reason I’m not rich is because I have a family and kids.
  • Don’t take risks.
  • I can’t afford certain things.

Rich Dad

His best friend’s father who only finished school after the 8th grade. Later he became one of the wealthiest persons in Hawaii. What he learned from him:

  • Use your head to create passive income.
  • Study hard so you can find a company to BUY.
  • The reason I have to be rich is because I have a family and kids.
  • Learn to manage risks.
  • How can I afford that?

What Are Income And Expenses?

Definition Of Income

Income is all the money that you get into your pocket. This can be from your job or from any money-generating asset.

Definition Of Expenses

These are all the items you need to spend money on, such as costs of living, rent, holidays, outside eating, etc.

The Difference Between Assets And Liabilities

Definition Of Asset

Puts money into your pocket. Assets don’t need you trading time for money. Assets are passive income. Examples: stocks, bonds, mutual funds, royalties, income-generating real estate.

Definition Of Liability

Takes money out of your pocket. Liabilities might first look like assets but they are actually not. Examples: luxuries, expensive cars, expensive real estate you live in.The rich buy income-generating assets. The poor and middle-class guy liabilities.

Cash Flow and Financial Structures

Poor Dad’s Financial Structure

Income = Expenses
Assets < Liabilities
Profession = Income

> Spend your income on expenses and “enjoy” life because you deserve it.
> Grow liabilities.
> If you stopped working today, how long could you survive?
“Generally, it is my total savings / monthly expenses, i.e. a specific amount of months (or unlikely, years).”

Rich Dad’s Financial Structure

Income > Expenses
Assets > Liabilities
Assets = Income

> Reinvest: Invest excess of your income after expenses to get more assets. This is why the rich are getting richer and richer.
> Minimize liabilities.
> If you stopped working today, how long could you survive?
“I no longer work for money, money works for me. I can survive forever.”

Rich Dad Poor Dad Lessons

Lesson 1: The Rich Don’t Work for Money

Rich people don’t trade their time for money. They setup systems so their money works for them. Be aware of the trap which most poor and middle-class people fall into: be controlled by fear and greed.

Lesson 2: Why Teach Financial Literacy?

Understand that it’s not about how much money you make but it is about how much money you keep.

Lesson 3: Mind Your Own Business

Focus on your own business and passive income, don’t focus on your job and the income statements.

Lesson 4: The History of Taxes and The Power of Corporations

Train your financial IQ on these topics:

  1. Accounting
  2. Investing
  3. Understanding Markets
  4. Law

Setup a company and use it as a safe haven to build assets. Use the legal tax loopholes which exist for corporations.

Lesson 5: The Rich Invent Money

The rich see opportunities to invent money. Great opportunities are not seen with your eyes – they’re seen with your mind. The three most important skills are:

  1. The skill to see opportunities which others have missed.
  2. The skill to make more money with money.
  3. The skill to find and hang out with smart people.

Lesson 6: Work to Learn—Don’t Work for Money

Rich people work to learn and not for job security. You need to know a little bit about a lot of subjects. The key management skills for success are:

  1. Management of cash flow
  2. Management of systems – including yourself and your time with your family
  3. Management of people

Lesson 7: Overcoming Obstacles

  • Overcome fear. Some people are so afraid of losing…that they lose. “The primary difference between a rich person and a poor person is how they manage fear.”
  • Overcome cynicism. Eradicate your self-doubt. We all have tremendous potential, and we all are blessed with gifts. Yet the one thing that holds all of us back is some degree of self-doubt.
  • Overcome laziness. Get rid of the same laziness which is preventing you from going to the gym. The most common form of laziness is staying busy.
  • Overcome bad habits. Don’t watch so much TV and don’t go out to drink on the weekends so often.
  • Overcome arrogance. “Every time I’ve been arrogant, I lost money because I believed that what I didn’t know wasn’t important.”

Ten Steps To Awaken Your Financial Genius

  1. Find a reason greater than reality.
    Have a strong reason to pursue financial independence.
  2. Make daily choices.
    Choose your daily activities wisely to invest in your mind and goals
  3. Choose your friends carefully. 
    Be careful who you choose to associate with because you are the average of the 10 people you are the closest with.
  4. Master a formula then quickly move on to the next.
    Financial success is closely linked to how quickly you can learn new formulas for making money.
  5. Always pay yourself first to enhance your self-discipline.
    If you can’t control yourself, don’t try to get rich.
  6. Pay your brokers well.
    It’s hard to measure the power of good advice.
  7. Be an Indian Giver.
    Make investments that net free land or other goodies.
  8. Use assets to buy luxuries.
    Always buy luxuries with income from assets and not loans.
  9. Choose heroes.
    By having heroes, it becomes much easier to tap into your raw genius.
  10. Teach and you will receive.
    When you need something, give what you want first, and it will come back to you in buckets.

Still Want More? Here Are Some Todo’s

  • Look for new ideas and recipes.
  • Find people, who have done something similar before.
  • Make offers. Someone might say “YES”.
  • Go running. Run through specific areas and observe changes. Talk to newly arrived people.
  • Compare prices and special offers of supermarkets and stock exchanges. Consumers act exactly the opposite way.
  • Only work with property agents who own properties themselves.
  • Watch out for judicial sales. Ask banks or find other platforms.
  • Make profit when buying, not when selling. In other words: buy low and sell high.
  • Thing BIG. Buy all and then divide it like a cake.

Quotes From The Book

Mind, Education And Intelligence
“The single most powerful asset we all have is our mind. If it is trained well, it can create enormous wealth.”
“Money comes and goes, but if you have the education about how money works, you gain power over it and can begin building wealth.”
“Most people simply buy investments rather than first investing in learning about investing.”
“The most important specialized skills are sales and marketing.”
“Intelligence solves problems and produces money.”
“There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”
“The reason so many talented people are poor is because they focus on building a better hamburger and know little to nothing about business systems.”
“There is gold everywhere. Most people are not trained to see it.”

Assets And Liabilities
“An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first.”
“Keep expenses low, reduce liabilities, and diligently build a base of solid assets.”
“One of the main reasons net worth is not accurate is simply because, the moment you begin selling your assets, you are taxed for any gains.”
“Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?”
“The rich buy assets. The poor only have expenses. The middle class buy liabilities they think are assets.”
“A new car loses nearly 25 percent of the price you pay for it the moment you drive it off the lot.”

Fear And Risks
“For most people, the reason they don’t win financially is because the pain of losing money is far greater than the joy of being rich.”
“It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal and praying.”
“The fear of being different prevents most people from seeking new ways to solve their problems.”
“The primary difference between a rich person and a poor person is how they manage fear.”

Job And Profession
“J.O.B is an acronym for ‘Just Over Broke'”
“Financial struggle is often directly the result of people working all their lives for someone else.”
“Businesses that do not require my presence I own them, but they are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.”
“Start minding your own business. Keep your daytime job, but start buying real assets, not liabilities.”
“Thinking that a job makes you secure is lying to yourself.”
“If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.”
“So many people say, ‘Oh, I’m not interested in money.’ Yet they’ll work at a job for eight hours a day.”

Business And Passive Income
“The best thing about money is that it works 24 hours a day and can work for generations.”
“A corporation earns, spends everything it can, and is taxed on anything that is left. It’s one of the biggest legal tax loopholes that the rich use.”
“The problem with ‘secure’ investments is that they are often sanitized, that is, made so safe that the gains are less.”
“Cash flow tells the story of how a person handles money.”
“Most people don’t understand why they struggle financially because they don’t understand cash flow.”

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What “Rich Dad Poor Dad” Tells Us About Successful Passive Income

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