*A Book Review*
Rich Dad, Poor Dad
By Robert T. Kiyosaki with Sharon L. Lechter, CPA
by Michael C. Gray
July 25, 2000
What is the difference in the world view and attitude of people who become rich compared to other people? What things do they do differently to have such different results in their lives?
Robert T. Kiyosaki had a unique opportunity to find out. Robert's father was an educator and public administrator. When Robert was a young boy, he and his friend, Mike decided they wanted to learn how to become rich. They started by trying to make (counterfeit) money.
Robert's father explained to the boys this was illegal. He also admitted he did not know how to become rich, but suggested the boys ask Mike's father how to go about it. So Mike's father, an independent businessperson, became a mentor to Robert, his "Rich Dad."
This book is the fascinating story of how the Rich Dad taught Robert the lessons he needed to learn to make himself financially independent. Robert has learned that our educational system is pretty good at producing employees, but not very good at producing people who are good at managing their finances wisely. He now teaches people how to apply the principles of becoming rich. In addition to publishing the information in this book, he has developed a game, CASHFLOW(tm) 101 to help people develop their financial intelligence.
Some of the ideas Robert presents reinforce those in other books we have reviewed. Like The Millionaire Next Door, Robert points out the difference between having a big salary and building wealth. Like The Richest Man In Babylon, Robert emphasizes the importance of paying yourself first. In his opinion, it's more important to systematically invest a portion of your income than to pay your bills or to pay your taxes. (A controversial concept.)
Robert also has a definition of an asset versus a liability that is different from conventional accounting. Investors generally focus on accumulating assets and avoid liabilities. Simply stated, assets generate income or cash. Liabilities consume cash. Rich people accumulate assets. People who aren't rich accumulate liabilities. Some things that look like assets are actually liabilities - for example: a residence, a car, a boat. When we accumulate these things, we are not really accumulating wealth, we are consuming it. If we haven't accumulated sufficient assets and we acquire these "toy" liabilities, we are putting the cart before the horse. Instead, we should emphasize regularly acquiring stocks, bonds, tax lien certificates, rental real estate, and other investments. We also need to learn to build value and get some tax shelter by building our own business.
Robert acknowledges that it is possible to use the principle of compound interest and regular saving to achieve financial independence. The problem with this approach is it's a long, patient one. Most people get started too late for it to work.
The rest of us must develop our financial intelligence, make risk our friend, and accelerate our financial growth. Although diversification is appropriate for preserving accumulated wealth, the investor usually must take the additional risk of focused investments in order to initially accumulate wealth. Bigger returns require accepting more risk.
Rich Dad, Poor Dad is the kind of book that opens your mind to new possibilities. Whether to contribute to your child's financial education or your own, you will want to have a copy in your home.
Buy it on Amazon: Rich Dad Poor Dad for Teens: The Secrets about Money--That You Don't Learn in School!.
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