Book Review: Rich Dad, Poor Dad

To this date, I've passed about seventeen years in formal education and all these years, I was taught to study hard, get good grade and lend in a good job for better salary and living. Our education system is designed to make us a good fit to work for money, but how much we are taught about the money itself. From the educational institutions we get tons of knowledge about the profession and almost zero about personal finance which results in many highly paid professionals living on debt and have very little for their retirement. This book tries to fill the gap of our financial intelligence and gives some ideas about how to think about money.

Robert had the opportunity of learning from two fathers on the subjectof money. One his real dad whom he calls the Poor Dad and another, his friend’s dad whom he calls the Rich Dad. Though his real dead was highly educated and had a good job, he lacked the understanding of money and therefore, he kept working for money and always run short of it. On the other hand, the Rich dad was less educated but had high financial intelligence and knew how to make the money work for him.  

Two fathers have different views about money. One believes “the love of money is the root of all evil" while another says “the lack of money is the root of all evil”. When new demand arises one would say “I can’t afford it” and other “How I can afford it?” where the statement makes the brain stop and the question puts the brain on work. When there is money involved, one would try to play it safe while another focuses on managing the risk. In his early years, Robert decided to listen to his Rich dad and in this book he summarized the lessons he received in all these years from this Rich Dad.

Robert learned that the “Rich don’t work for money”. The poor and the middle class wake up, get ready, and go to work for money every day but the Rich have the money work for them. The reasons the poor and the middle class keep doing this are their fear and desire; the fear of not having money and the desire of getting something bigger, and they let their emotions do the thinking regarding their problems and solutions, not themselves, therefore, many times, can’t see the long term picture of how much their today’s decision will be beneficial and sustainable in the coming future.

One may earn millions but money without financial intelligence is money soon gone, so, to be rich financial literacy is essential for everyone from the clerk to the CEO. And, here, the first and foremost is understanding the difference between asset and liability. Asset is the things that put money in one’s pocket while liability takes money out and the Rich focus on acquiring assets and the poor and the middle class acquire liability. The Rich then match the cash flow from asset column with expense and reinvest the excess, thus they grow richer with more cash flow.

The Rich also have different strategy for having luxury. While the Poor and the middle class buy the luxuries first and mostly on credit, the Rich build their asset column first and buy their luxuries by the income generated from the assets last. So, to be successful, one must develop his/her financial IQ by mastering areas like accounting-understanding financial statements; investing-knowing the science of money making; market-understanding the science of supply and demand; and law-having knowledge of tax.

The author lists five obstacles holding many people to build their assets column. These are fear of losing their money, cynicism regarding investment, laziness in facing their needs, bad habits of spending, and arrogance for learning.  To get over these road blocks and developing one’s financial genius, Robert recommends, finding a reason to push oneself, choosing carefully every spending and every association, being open to new ideas, building asset column, paying the broker well, looking beyond the ROI of assets, buying luxuries by the income from assets, following or emulating  heroes and teaching others about money.

Lastly, learning how to make money working for one is a life time study. The earlier one starts, the better. And, one should not play it safe, rather play it smart and focus on being smarter than money, because only then, one can have the control over money to make it work for them.