Written by Robert Kiyosaki. Robert tells the story of his two Dads. One is his own father who is accademically very strong and models to have a good paying job and with good performance, climbing the ladder and getting on top. The other Father is father of his best friend Mike; who values education a lot too but instead of climbing the ladder, he says why not own the ladder and be on the top. The idea of the bookis that many of us are too afraid to be labeled as an outlier in order to exit the rat race. For most of us, the two main emotions Fear and Greed dominate our decisions and that is why we stick to the life cycle “ go to school, get a degree, get a job and play it safe” whereas no job is safe.
Robert describes the lessons he learnt from his other Dad (Mike’s dad) about finances. Following are the lessons:
Lesson 1: The Rich Don’t Work for Money.
Suggests that the actual Rich people do not spend their life working for money. Normal people work really hard to earn some money and they keep on pushing themselves to extremes to fulfill their needs and get stuck in the Rat Race. To excell they have to work more and blame others for not being successful. They desperately look for salaries and then for the raises. They pay huge taxes and the money they get, they spend it on liabilities, like trying to buy house they can afford, buying a car to appear rich etc. They feel the fear of not having enough. They let their emotions control them. And when they get the money, the emotions of joy and desire takes over and again they react instead of think, Their emotions control their brains. Job is a short term solution to a long term problem.
Lesson 2: Why Teach Financial Literacy
If you want to be rich, you need to be financially literate. That is what differentiates between Rich and the Poor. They Rich know what money is and how they can make it. Rich people acquire assets whereas the poor and middle-class acquire liabilities that they think are assets. So the Rule # 1 is: you must know the difference between an asset and a liability, and buy assets. An asset puts money in your pocket. A liability takes money out of your pocket. The cash-flow pattern of poor is: They earn money and spends it all on their expenses (taxes, food, rent, clothes etc). The cash-flow of middle-class is: They earn money, they buy liabilities (mortgage, car loans, credit cards) and along with other expenses they spend it all. The cash-flow of rich is: They make assets (real estate, stocks, intellectual property) and generate income and use that income to manage the expenses.
Lesson 3: Mind your own Business
Financial struggle is often the result of people working all their lives for someone else. Start minding your own business. Keep your day job but start buying assets. Do not buy liabilities. A new car loses nearly 25% of its price when you buy it. Keep expenses low. Real assets fall into the following categories:
- businesses that do not require my presence
- income generating real estate
- Notes (IOUs)
- Royalities from intellectual property
- anything that has value and produces money or appreciates and has a ready market
Lesson 4: The History of Taxes and the Power of Corporations
The knowledge of taxes and legal corporate structure really gives the rich a vast advantage. Because of this knowledge, the rich always find a way to out-smart others. The financial IQ is made up of knowledge from four areas:
- Understanding markets
- The Law
Business owners with Corporations: earn, spend and then pay taxes. Employees who work for corporations: earn, pay taxes and then spend.
Lesson 5: The Rich Invent Money
The most powerful asset we all have is our mind. If it is trained well, it can create wealth. Invest in your financial IQ. Money is not real. The poor and middle-class work for money whereas the rich make money. The problem with “secure” investments is that they are often sanitized meaning they are made so safe that the gains are less. Using the financial IQ, you can do they right investments with good gains. It is not gambling if you know what you are doing, It is gambling if you are just throwing money in a deal and praying.
There are two types of investors:
- Who buy a packages investment. They use some retail outlet, real estate company or broker. It is clean and simple way of investing.
- Who creates investments. Puts components/opportunities together (or know people who can) and get the most out of the deal.
Three main skills are required for second type of investor:
- Find an opportunity that everyone has missed (see with your mind)
- Raise Money. Needs to know how to raise capital. (Bank is not the only way).
- Organise smart people. Hire a person who is more intelligent inthe subject than you are.
Lesson 6: Work to Learn – Don’t Work for Money
Know a little about a lot. Job is an acronym for “Just Over Broke”.
The main management skill needed for success:
- management of cash-flow
- management of systems
- management of people
Most important specialized skills are Sales and Marketing. Communication skills (writing, speaking and negotiating) are crucial to success. Handle fear of rejection. Spend a year learning to sell.
Work with people smarter than you are. Bring smart people together to work as a team.
Being good sellers, marketers, be good teachers as well as good students. Need to be able to give as well as receive.
Chapter 7: Overcoming Obstacles
There are five main reasons why financially literate people may still not develop enough asset columns:
- Bad Habits
Chapter 8: Getting Started
- Find a reason greater than reality: the power of spirit
- Make daily choices: the power of choice
- Choose friends carefully: the powere of association
- Master a formula and then learn a new one: the power of learning quickly
- Pay yourself first: the power of self-discipline
- Pay your brokers well: the power of good advice
- Be an indian giver: the power of getting something for nothing
- Use assets to buy luxuries: the power of focus
- Choose heros: the power of myth
- Teach and you shall receive: the power of giving
Chapter 9: Some To Do’s
- Stop doing what you’re doing
- Look for new ideas
- Find someone who has done what you want to do
- Take classes, read and attend seminars
- Make lots of offers
- Jog, walk or drive a certain area once a month for 10minutes
- Shop for bargains in all markets
- Look in the right places
- Look for people who want to buy first. Then look for someone who wants to sell
- Think big
- Learn from history
- Action always beats inaction