6 Key Lessons on Financial Freedom from “Rich Dad, Poor Dad”

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Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! — Robert T. Kiyosaki

It’s been 25 years since Kiyosaki wrote Rich Dad Poor Dad and it is still considered the best personal finance book of all time. In this book, Robert tells us his story of growing up with two dads, his real father who he will address as his educated dad or poor dad, and the father of his best friend who was the rich dad, and the ways in which both men shaped his thoughts about money and investing.

Lesson 1: The Rich Don’t Work For Money

The poor and the middle-class work for money. The rich have money work for them. Most people become a slave to money. That is why Kiyosaki states how important it is to learn to have money work for you.

People’s lives are forever controlled by two emotions: fear and greed. Fear of being without money motivates us to work hard, and then once we get that paycheck, greed or desire starts us thinking about all the wonderful things money can buy. The pattern of getting up, going to work, and paying bills is then set. Offer them more money and they continue the cycle by increasing their spending. This is what Kiyosaki calls the Rat Race.

In order to avoid this Rat Race, Kiyosaki states how important it is to not give in to your emotions, delay your reactions and think. You need to use those emotions to your advantage and not let your emotions control your thinking.

Lesson 2: Why Teach Financial Literacy?

In order to become financially independent, you need to be financially literate. Most people in life fail to realize that, it’s not how much money you make. It’s how much money you keep.

Rule #1: You must know the difference between an asset and a liability, and buy assets.

Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.

An asset puts money in your pocket. A liability takes money out of your pocket. Most people confuse these two terms and believe that their house is an asset. However, most people are wrong since your house is not an asset because it would take money out of your pocket. In the following video, Kiyosaki explains in less than 2 minutes the difference between assets and liabilities.

Lesson 3: Mind Your Own Business

Start minding your own business. Keep your daytime job, but start buying real assets, not liabilities or personal effects that have no real value once you get them home. Keep expenses low, reduce liabilities, and diligently build a base of solid assets.

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

If they only understood the way the rich play the game, they could play it too. Then they would be on their way to their own financial independence.

Average Americans today work four to five months for the government just to pay their taxes. The harder you work the more you pay the government.

The rich don’t simply comply. Every time in history people tried to punish the rich by making them pay more taxes, they have fought back. They have the money, power, and intent to change things. They don’t just sit there and voluntarily pay more taxes. Instead, they search for ways to minimize their tax burden by hiring smart attorneys and accountants and persuading politicians to change laws or by creating legal loopholes. They use their resources to effect change.

If you work for money, you give the power to your employer. If money works for you, you keep the power and control it.

Kiyosaki throughout this lesson also reveals the legal secrets and strategies that the rich have used for generations to create money, protect their assets and save taxes which is owning your own personal corporation.

Business Owners with Corporations:

  1. Earn
  2. Spend
  3. Pay Taxes

Employees Who Work for Corporations

  1. Earn
  2. Pay Taxes
  3. Spend

Lesson 5: The Rich Invent Money

Often in the real world, it’s not the smart who get ahead, but the bold.

Kiyosaki faces questions like: “Why take risks?” “Why should I bother developing my financial IQ?” “Why should I become financially literate?” And he answers, “Just to have more options”

The most powerful asset we all have is our mind. It is important to train the mind well so that it can create enormous wealth. A mind that is not trained can create extreme poverty.

In order to have financial intelligence Kiyosaki explains to us the four main technical skills that we need to work on:

  1. Accounting: Financial literacy, or the ability to read numbers.
  2. Investing: The science of money making money.
  3. Understanding markets: The science of supply and demand.
  4. The law: The awareness of accounting corporate, state and federal regulations.

Most people never get wealthy simply because they are not trained financially to recognize opportunities right in front of them.

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

Job security meant everything to my educated dad. Learning meant everything to my rich dad.

In school or in the workplace we are told how important specialization is in order to make more money or get promoted. However, his rich dad encouraged the total opposite. You want to know a little about a lot was his suggestion.

Obstacles to overcome in order to achieve financial freedom

  • Fear: Everyone has fear of losing money. That is not the problem, the problem is how you handle fear. How you handle losing and failure is what makes the difference between a rich person and a poor person. Winners are inspired by failure whereas losers are defeated by failure.
  • Cynicism: It often takes great courage to not let rumors and talk of doom and gloom affect your doubts and fears. But a savvy investor knows that the seemingly worst of times is actually the best of times to make money. When everyone else is too afraid to act, they pull the trigger and are rewarded.
  • Laziness: Rich dad believed that the words “I can’t afford it” shut down your brain. “How can I afford it?” opens up possibilities, excitement, and dreams.
  • Bad Habits: Educated dad always pays others first whereas rich dad always pays himself first. That way the pressure to pay his taxes and the other creditors is so great that it forces him to seek other forms of income. That pressure to pay is his motivation to make more money and become richer.
  • Arrogance: Rich dad often said the following: “What I know makes me money. What I don’t know loses me money. Every time I have been arrogant, I have lost money. Because when I’m arrogant, I truly believe that what I don’t know is not important,”

Kiyosaki finishes the book by telling us about our two great gifts in life: our mind and our time. It is up to us what we do with both. Every time we get a dollar we have the power to decide whether we want to spend it foolishly and choose to be poor or whether we decide to invest in our minds and learn how to acquire assets and become rich.