Summary of “Rich Dad’s Guide to Investing”: Robert Kiyosaki shows us how to become a sophisticated financial investor, and how the rich think about investment mentally, technically and as an entrepreneur.
By Robert Kiyosaki, 2014 (new edition), 528 pages.
Note: This review is a guest review written by Antonin from the blog, Learning to Invest.
In this book, Robert Kiyosaki often refers to his “rich dad”. This “rich dad” is not his biological father; he is the father of one of his friends who gave him precious financial literacy tips. This “rich dad” is the same as the one presented in another book by the same author: “Rich Dad, Poor Dad. ”
Chronicle and summary of “Rich Dad’s Guide to Investing”:
“By reading this book from start to finish, you’ll know more about investing than many investment advisers who get paid to offer their advice.”
This is the promise of Robert Kiyosaki. It starts from a simple observation: Pareto’s law applies with respect to the distribution of wealth, and even beyond, since 10% of people make 90% of the money. To succeed, one must “not be average”.
In order to not be average, it’s necessary to invest and understand the operation of companies, because it is often by them and in them that one invests. However, there is a problem:
“The average investor doesn’t know how to do it and that’s why he/she is one of the 90% who makes only 10% of the money.”
The following topics will be addressed in order to understand the difference between the investor who hopes to make money, if the market is good, and the investor who makes money, regardless the state of the market:
- The 10 investor controls.
- The 5 phases of the plan getting someone with no money to invest with a lot of money.
- The various tax laws that govern investments.
- Why and how a true investor makes money, regardless of the state of the market.
- The difference between fundamental and technical investments.
- Five types of high-level investors.
- The difference between not having enough money and having too much money.
- How to secure an income well over $ 200,000 to start investing in investments of the wealthy.
The main difference between the rich investor and the average investor lies in their mentality. The rich investor seeks to increase his skills and think bigger than the average investor (recognizing that there are different ways of thinking).
Phase One of Rich Dad’s Guide to Investing: Are You Mentally Prepared to Become an Investor?
This first phase presents eighteen investment lessons:
1. In Which Sectors Should I Invest?
“Only rich people can invest in the same way as rich people. And that’s why the rich get richer.”
Accredited investors may have access to certain types of investments. To be accredited, they must have an annual income of over $ 200,000 or have a wealth of more than $ 1 million.
But that doesn’t mean they’re sophisticated investors. Sophisticated investors have the 3 Es: education, experience and excess cash. The following chapters will show how to obtain the 3 Es.
The five phases of the book’s plan correspond to the steps to learn how to become a sophisticated investor:
- Are you mentally prepared to become an investor?
- What type of investor do you want to become?
- How to build a strong business.
- Portrait of a sophisticated investor.
- Giving it back.
All millionaires and billionaires have gone through these five phases, from Bill Gates to Marc Zuckerberg.
“You cannot teach someone to become a sophisticated investor, but an individual can learn to become a sophisticated investor.”
2. Establishing a Foundation of Wealth
“All investors do is learn how to grow their money.”
Everyone will tend to move to a different career based on their emotional needs: those in need of security will likely become employed, while others who seek more independence will have their own small business.
However, wealth is created on the other side of the CASH FLOW quadrant, becoming the owner of a large company, or investor.
The investment process starts from within, in your head, and by a simple decision.
“It all starts with a very personal decision, a choice between being rich, being poor or being part of the middle class.”
3. The Choice
There are three possible choices regarding money:
Most people choose the first (security), and the last (wealth) is rarely a priority. Robert Kiyosaki established wealth as the first choice when he was young and was leaving his military service.
“One of the reasons why the 90/10 rule of money exists is perhaps that 90% of people choose comfort and security instead of opting for wealth.”
4. How Do You See the World?
“Your perception of money will shape your world. You will not be able to change your world until you change your perception of money.”
Kiyosaki’s poor dad encouraged him to be cautious and pursue security. His rich dad asked him to be creative and to increase his skills.
The more people look for security, the less they are able to see the opportunities, and they live in a world of scarcity.
“The majority of people spend their lives always looking for more security instead of trying to gain more financial skills.”
5. Why the World of Investing is Confusing
Investment is a broad field, in which everyone has specific skills and has their own prejudice.
In addition, there are many stocks and sub-groups of stocks for which each specialist may have a different opinion. All this makes the investment world confusing for a novice.
Some people say,” Diversify. Don’t put all your eggs in one basket”, while others like Warren Buffett, (…) say, “Don’t diversify. Put all your eggs in one basket and watch your basket closely.”
6. Any Investment Is a Plan and Not a Product or Procedure
“There are a lot of investment instruments, or vehicles, because there are a lot of people with different needs.”
Each investment vehicle serves a particular purpose at a particular time. People want to know which is the best investment vehicle, but there is no absolute answer.
A true investor makes a plan, from which he can use several kinds of investment vehicles, if they’re in keeping with his plan.
7. Are You Planning to Be Rich or Are You Planning to Be Poor?
“You can get a good idea of people’s past, present, and future by listening to what they say.”
The words and expressions used by people reveal their beliefs, their knowledge, and therefore their future, in terms of money.
Becoming rich starts by expanding one’s vocabulary into a specific area of investment. The good news is that words are free.
“Words form thoughts, thoughts form reality and reality becomes life.”
It is important to plan your life and your retirement as soon as possible because everything becomes more difficult when you get old, and some things cost a lot more. Therefore, a good financial plan should go well beyond retirement.
“When you’re young, the problem is that you don’t know what it’s like to be old. If young people knew, they would plan their financial lives differently.”
8. Wealth Is Automatic, If You Have a Good Plan and If You Stick to It
“Many people think that investing is an exciting and very risky process.”
In fact, investing is mostly boring, mechanical, and involves following a simple rather than complex strategy, as one might imagine.
Selecting investments based on intuition or advice from friends does not work well. And these mistakes are made as much by professional investors as by individuals. The former rarely beat the S&P 500 (US stock index, of which the French equivalent is the CAC 40).
Instead, develop a simple strategy, based on data with the longest possible historical period. Then follow this strategy.
9. How to Find the Plan that Is Right for You
“For the majority of people, the ultimate goal is to have financial freedom, freedom that will free them from the tedious task of working to earn money.”
First, let yourself have a moment of personal reflection to define your goals. Next, seek the advice of a successful mentor, if you have one, or a professional who has achieved the goals you have set for yourself and see if they are right for you.
If they don’t suit you, consult another professional. Your plan won’t be perfect, but you will correct it as you learn and gain experience.
10. Decide Now What You Want to Become Later
“Most people plan a life of scarcity, although there is a parallel universe of financial abundance. All you need is a plan to enter this universe.”
Even if your goal is wealth, make a plan for financial security and financial comfort first.
Why? Because they are easier to define and respect. Furthermore, having several plans can be used with your most ambitious plan in case of difficulty.
11. Each Plan Has a Price
“Poor people measure things from the point of view of money and rich people measure things in terms of time.”
Most people think money is more important than time. However, time is the value in which one must invest to become rich.
Plans to achieve security and comfort are easy to put in place. Only the plan to become rich requires a learning curve.
By not being ready to invest your time, you have no choice but to work for money.
“In the Western world, almost anyone can become a millionaire by following a long-term plan.”
12. Why Investing Isn’t Risky
People think that investing is risky for three reasons:
- Because they are not trained to invest.
- Because they have no control over their investments.
- Or because they invest from the outside rather than from the inside.
Good deals are all from the inside (closest to the heart of the game).
“If you’re not inside, you’re outside”
– Gordon Gekko
The time you invest will have to be used to gain knowledge so you can invest from within.
13. On Which Side of the Table Do You Want to Sit?
“Today, in the Information Age, the majority of us need to have much more financial knowledge.”
Most people choose to sit on the left side of the CASHFLOW quadrant, the Employees and Self-employed side.
The fact that people are more and more obliged to pay for their own retirement makes the right side of the quadrant, that of Business Owners and Investors, more significant.
Investors make their money grow, and businesses are taxed less than individuals, making the right side more attractive.
14. Basic Rules of Investing
- Know what types of income you want to generate. (Ordinary) income from work (your job), portfolio income (your assets), or passive income (real estate gains).
- Convert earned income to passive income or portfolio income.
- “That’s in a nutshell what an investor is supposed to do. It is as simple as that.”
- Buy securities that will convert earned income into portfolio income or passive income.
- It is the investor (through their choices and actions) who is the asset or the liability, and not the investment.
- A true investor is ready for all eventualities, while the non-investor tries to predict what will happen.
- “People themselves predict that no opportunity will arise, instead of being ready to take advantage of it.”
- The most beautiful opportunities attract capital and are therefore not out of reach.
- Acquire the ability to assess the risk and potential of an investment. An investment that does not follow the KISS (“Keep It Simple Sweetheart”) principle, that is to say, that is easily understandable, is likely to have a high risk.
15. Reduce Risk Through Financial Literacy
“A true investor does not care about the behavior of the market. A true investor will make money, regardless of what happens.”
Rich people buy businesses, real estate assets (passive income) and paper assets (portfolio income). They convert their income into assets. That’s why they always get richer.
Investment is risky for people who do not understand their own financial statements or those of companies, or the difference between assets and liabilities.
“Whoever is financially illiterate is unable to evaluate the potential of an investment.”
16. Financial Literacy Demystified
“An asset puts money in your pockets. (…) A liability takes money out of your pockets.”
It is necessary to understand the income statement and balance sheet. The income statement lists your income on one side and your expenses on the other. The balance sheet lists your assets on one side and your liabilities on the other.
Literacy Lesson 1: Cash flow direction determines whether something is an asset or a liability
The income statement tells you whether to classify something among assets or liabilities. If this thing has a negative cash flow, it must be classified as a liability (e.g., a principal residence). If the cash flow is positive, it will be classified as an asset (e.g., house that generates rental income above credit charges, taxes, insurance…).
Literacy Lesson 2: At least two financial statements need to be reviewed to see the entire picture
“Each of our expenses is added to someone else’s income, and each of our liabilities becomes an asset for someone else.”
By having two financial statements, one can see that the expenses of one are the revenues of another, just like assets and liabilities.
The average investor doesn’t take the time to get involved in accounting or finance. The sophisticated investor analyzes any investment in terms of financial statements. Thus, he/she is continually improving his/her financial literacy.
17. The Magic of Mistakes
“When you reach the boundaries of your knowledge, it’s time to make some mistakes.”
Errors are sources of learning, discovery and progression. That said, education punishes mistakes.
“School smarts are important, but street smarts allow you to become rich.”
To learn from a mistake, it is important to start by directly confronting it: without concealing it, denying it, blaming others, or seeking to justify oneself.
The poor dad of Kiyosaki, who operated in the educational world, always tried to avoid making mistakes. His rich dad was happy to fail and learn from it.
“If I have so much money, it’s because I was willing to make more mistakes than most people, and because I learned from those mistakes. The majority of people haven’t made enough mistakes or continue to repeat the same ones. Without mistakes and without learning, there is no magic in life.”
– Rich dad
18. What Is the Price of Becoming Rich?
There are many ways to become rich: marrying someone rich, committing fraud, inheritance, winning the lottery, becoming a star, being greedy, stingy, financially smart, or generous.
All require paying a price. The most recommended are the last two. Becoming financially smart requires developing the 3 Es (Education, Experience and Excess Cash).
Becoming rich and generous is to serve a large number of people in a system operating in quadrant B (business owner) or I (investor).
People who become rich from nothing possess these essential elements called the 5 Ds:
People think that only the last two are important. Rich dad thinks otherwise:
“In reality, it is by focusing on the first 3 Ds that gains you the data and the dollars needed to become very, very rich.”
The 90/10 Riddle
“Bill Gates, Michael Dell and Richard Branson (…) did not become billionaires by looking for a job and putting a few dollars aside.”
Finding a good paying job and setting aside a good portion of your salary to invest is a good plan. However, it will not put you among the 10% of investors who earn 90% of the money.
Another way is to create assets rather than having to buy them. That’s what entrepreneurs, singers, artists, writers, and smart investors do.
“The people who are part of the 90/10 club are alchemists of modern times. (…) Their power is their ability to turn an idea into an asset.”
Challenging yourself to think of ideas that can become assets is a useful way to use your brain.
“The riddle (90/10) is:’How can you create assets and write them in the asset column without having to buy them?’.”
Phase Two of Rich Dad’s Guide to Investing: What Type of Investor Do You Want to Become?
Solving the 90/10 Riddle
“There are investors who buy assets and there are investors who create assets. If you want to solve the riddle of 90/10, you have to be both types of investors at the same time.”
A good idea is not enough; it must then be transformed into a corporate structure that allows the idea of being able to generate money.
Most people will oppose such ideas, either because they are unable to do so themselves or because they do not understand them. Therefore, it’s necessary to have strong convictions and a strong spirit.
“Finding your entrepreneurial spirit and making it strong is more important than the idea or business you are developing.”
Categories of Investors
There are several categories of investors, which will be described in more detail later:
- Accredited Investor: He/she has a certain level of income or wealth.
- Qualified Investor: He/she knows how to analyze stocks and invests “externally”.
- Sophisticated Investor: He/she has broad skills and possesses the 3 Es (education, experience, excess cash).
- Inside Investor: He/she builds businesses and knows how to create assets.
- Seasoned Investor: A selling shareholder who has a business of which he/she sells the shares to the public.
The Accredited Investor
To qualify as an accredited investor, you must have annual revenues of at least $ 200,000, or assets in excess of $ 1 million.
This limit protects the average investor from transactions that could be dangerous for him/her. It was instituted by the SEC (Securities and Exchange Commission). That said, it also prevents the average investor from having access to some types of attractive investments such as IPOs (Initial Public Offering).
However, for an individual, being an accredited investor “does not necessarily mean that he/she is rich or knows the world of investing”.
The Qualified Investor
“A qualified investor is usually an accredited investor who has also invested in their financial literacy.”
They master both forms of investment:
- Fundamental investing: Invest according to the financial statements of the company.
- Technical investing: Investing according to price changes in a stock.
Warren Buffett is one of the best fundamental investors; George Soros is one of the best technical investors.
The average investor knows how to get rich only in a bull market, and he/she is afraid of crashes. The qualified investor knows how to get rich regardless of the direction of the market and is not afraid of fluctuations.
New investors often adopt risky behavior because they have never experienced a crash, nor the panic that grips the financial world. Moreover, in the Information Age, crashes will be more devastating (Note: we can consider that the author was right since the first edition of the book was released before the collapse of the techno bubble and the subprime crisis, two crises with particularly strong bear markets).
The qualified investor knows when and how to dispose of an investment, if things go wrong.
In order to help investors increase their financial skill, the author created the game, CASHFLOW, which aims to teach the basic principles of investment and fundamental analysis.
A qualified investor understands what the price/earnings ratio of a stock is, and how it determines whether a stock is a bargain compared to other stocks in the same industry. He/she also knows that being able to estimate the future price/earnings ratio is even more important.
The Sophisticated Investor
“The sophisticated investor has as much knowledge as the qualified investor, but they have also studied the benefits that the legal system can provide.”
A sophisticated investor benefits from the ETC:
The entity is the corporate structure. Some corporate structures offer reduced taxation, much lower than that of the self-employed and employees.
Other structures allow you to own nothing in your name, in order to limit the risks.
“The rich want to possess nothing but control everything.”
Timing is the mastery of the tax timeline: either by the possibility to carry forward the tax on a real estate gain in case of a new purchase that’s more expensive, or to close a fiscal year at a desired date in order to optimize the distribution of dividends.
Character is that of the three types of income:
Most people focus on ordinary income, which is also the most taxed. That’s why it’s important to develop the other two types of income. This is what rich dad means when he says:
“The rich don’t work for money. The rich make money work for them.”
Finally, the sophisticated investor knows the difference between good and bad expenses (example of good spending: fees on a tax strategist to save on taxes), and between good and bad debts (example of good debt: acquisition of a rental property).
The Inside Investor
“The inside investor is someone who has inside information and who exercises some control over the management of the company in which he/she invests.”
An inside investor controls the management of a company that he or she has created, or in which he/she has invested, until he/she has reached a majority stake.
This control allows him/her to minimize risks.
It is as an inside investor and by the creation of companies, especially in the field of real estate, that Robert Kiyosaki has gained financial freedom.
The Seasoned Investor
“The seasoned investor is a person who creates assets that are so valuable that the other assets they generate are literally worth billions of dollars shared by millions of people.”
Seasoned investors create companies that then become public companies in which millions of people invest.
Bill Gates and Warren Buffett are seasoned investors, with their companies Microsoft and Berkshire Hathaway.
How to Become Rich Slowly
“I buy assets first, and then pay taxes. Your dad pays taxes first, and he has very little money left to buy assets. ”
– Rich dad
The laws are not the same for the different quadrants of CASH FLOW. The employee always pays taxes to the government before receiving their salary. The business owner can invest before paying taxes.
These differences come from laws, which rich people have gradually influenced in their favor throughout history…
Today’s society, however, is part of the reason why we perceive the company as being riskier than the wage earner. As a result, fewer people want to start a business.
“Our education system was designed to train employees and professionals, not entrepreneurs.”
Becoming Rich While Keeping Your Day Job
“The # 1 rule to become an entrepreneur is to never accept a job just for the money. Only accept a job for the long-term skills it teaches you.”
Having a job to live off of is the first step. The largest companies were created part-time, as a side project.
Starting a part-time business allows you to acquire skills through experience in many fields: sales, communication, leadership, tax and corporate law, etc.
“The education you receive at school is important, but the education you receive on the street is much better.”
The Entrepreneurial Spirit
“The main reason people buy assets rather than create them is because they did not use their entrepreneurial spirit to turn their big ideas into big money.”
The main benefit of starting a business is to forge one’s entrepreneurial spirit by facing significant challenges. A company is very demanding and requires that one gives his or her best.
Few people embark on such a challenge. Many have great ideas, but few make them come true.
Phase Three of the Rich Dad’s Guide to Investing: How to Build a Strong Business
Why Build a Business?
The main reasons for building a business are:
- Generate excess cash flow
- Sell the business
- To make the business public
“If you succeed in building a prosperous business, you will always have a lot of money.”
The following traits are factors that increase the chances of success:
- Perseverance in the face of criticism
The B-I triangle
“The B-I triangle has the power to turn ordinary ideas into great fortunes.”
Transform an idea into a tangible asset: this is what the triangle B-I (Business Owner – Investor) allows. It has three elements:
1. The Mission
The mission is at the base of the triangle. Having a powerful mission will allow the company to weather storms without deviating from its trajectory and surviving in the long run.
The mission must be both “spiritual” and “organizational”. There must be both a noble purpose and a desire to make money (for example, Henry Ford’s spiritual mission was to democratize the automobile).
2. The Team
School teaches students to succeed on their own, but it is only as a team that you can succeed in a company.
A balanced company has four groups of people, each with a specific role: owners, employees, investors and specialists.
“The ability to cooperate with as many people as possible and the ability to help others without offending them are important human qualities.”
A good leader must be able to inspire others but also to listen to them, while keeping in mind the vision and mission of the company.
Leadership is the third element of the B-I triangle that will make a business successful.
“You will be able to build a solid business if you have the right mission, assembled the right team and found the right leader.”
Cash Flow Management
“Cash flow is to a business what blood is to the human body.”
Good cash flow management and anticipating liquidity needs are crucial for the company. Many promising companies went bankrupt by simply ignoring cash flow management rules.
“The world is filled with fabulous products, but the money is in the pockets of the best communicators.”
Communication, both external (to customers) and internal (to employees and shareholders) is vital to the smooth running of a business. Good or bad communication will have a direct impact on cash flow.
Customer service contributes to the image of the company and to a positive or negative word of mouth.
The different systems of a company interact and are interdependent. Each employee is at the heart of one of the company’s systems (product development, invoicing, customer service, marketing, accounting, human resources…).
“The role of the CEO is to oversee all systems and identify weaknesses before they cause failures.”
Investors value companies based on stable and strong systems. The business of a self-employed person is not stable, in that its system depends on its sole employee and his/her health.
Franchises operate with proven systems that can be replicated endlessly and without employee dependency. McDonald’s is the typical example.
“The business world is full of stories of young entrepreneurs with big ideas who started selling their products or ideas before protecting them.”
Legal aspects such as the protection of intellectual property are an integral part of setting up a business. They have a cost; however, they also save time, money, and avoid many problems.
“Most of us are able to make a better hamburger than McDonald’s, but few of us know how to build a better system than McDonald’s.”
The products are at the top of the B-I triangle. In the B and I quadrants, the products are less important than the system in which they fit.
They reflect the mission of the company by bringing ideas to life.
When a company or a country is having trouble, it’s because one of the elements of its B-I triangle has a problem. Building a business based on the B-I model is not easy, but it’s a great way to create assets.
To solve the riddle of the B-I triangle, it is necessary not to spread yourself too thin.
“Laziness is the key to success. The more hands-on you are, the less money you make.”
– Rich dad
Phase Four of Rich Dad’s Guide to Investing: The Portrait of a Sophisticated Investor
How a Sophisticated Investor Thinks
“You will make mistakes. If you learn from them, you can build larger companies. And during this process, you will become a sophisticated investor.”
A sophisticated investor understands the ten investor controls. Control over:
- Yourself: Financial literacy, learning from mistakes, understanding the financial statements.
- Income/expense and asset/liability ratios: A sophisticated investor buys or creates assets. They convert some of their personal expenses into business expenses.
- Investment management in other companies.
- Taxes: Being aware of the taxation and benefits of B and I quadrants such as the payment of certain pre-tax expenses.
- Decisions to buy and sell: Being patient, knowing how to make money regardless of market direction.
- Brokerage transactions: Knowing when to sell your business or when to invest in another business.
- The E-T-C (Entity, Timing, Character): Knowing corporate and tax laws in order to choose the right entity (ies) to maximize income and minimize taxation.
- Terms and conditions of the agreements
- Access to Information: Informing yourself and having awareness of your obligations as an investor.
- Giving back: A sophisticated investor is engaged in philanthropy to contribute to society.
Analysis of Investments
“The numbers tell a story. Whoever knows how to read financial statements can see what’s going on within a company.”
– Rich dad
To evaluate an investment, a sophisticated investor concentrates their analysis on certain key points:
- Financial ratios of a company: Ratio of gross and net profit margin, operating leverage, financial leverage, total leverage, debt ratio, quick and current ratio, and return on equity ratio.
- Financial ratios for investing in real estate: The statement of revenue and due diligence (checklist to make a conservative assessment of the investment).
- Natural resources such as gold are part of the portfolio of the sophisticated investor because of the limited amount on earth.
- Good or bad debt: Knowing whether an expense is linked to an asset and whether the cash flow is positive.
- Investing or saving: Investment produces better results than saving, which is still necessary.
“A sophisticated investor knows how to distinguish between investing and saving, and they incorporate both of these tactics into their financial plan.”
The Seasoned Investor
“(Warren Buffett and Bill Gates) have become seasoned investors by creating an asset worth billions of dollars.”
Many billionaires among them are in their thirties. They became billionaires by creating highly valued companies and then selling their shares.
There is a big wealth gap between those who buy the shares of others and those who create them to sell them: seasoned investors.
Sometimes the next step is the one that puts you through emotional turmoil. This is what Robert Kiyosaki had to go through to become a seasoned investor by creating an IPO (Initial Public Offering).
He was already financially independent, but he chose to go into uncharted waters in order to progress.
“The reality of an individual is the boundary between self-confidence and faith. (…) The individual is limited only by their perception of what they believe is financially possible.”
– Rich dad
Companies carrying out an IPO do not all become successful. These investments are only available to accredited investors because of their high risk.
Investors usually spread their risk across multiple companies. They lose little if a company fails but can hit the jackpot if a company takes value in the stock market.
Will You Be the Next Billionaire?
“If you want to become very rich, part of your strategy as a business owner is to create the business that the market is looking for, before it looks for it.”
In our time, fortunes happen much faster than in John Rockefeller’s time. However, although the IPOs for Internet companies are trendy (note: the book was written during the formation of the Internet bubble), the rule of 90/10 and the distribution of capitalism show that a minority of companies survive (note: that’s what happened with the explosion of the Tech Bubble in the early 2000s. We can also draw a parallel between the evolution of tech stocks 20 years ago and that of crypto currencies today).
“It’s the first million that’s the hardest to rake in.”
– Rich dad
There are six main reasons to take a company public:
- A need for capital to ensure growth.
- Gain market share with a new company.
- Acquire other companies with its own stock.
- Sell the company while keeping control.
- Provide for heirs (it’s more common than you think).
- To have new capital.
The four sources of capital to raise funds are:
- Friends and family.
- Angel investors.
- Private investors.
- Public investors.
Knowing how to sell is the main quality required to take a company public.
“Raising funds is selling a different product to a different audience.”
Will you be the next billionaire? Everything is possible from the moment you take to heart your objective, you put it in writing, and you put in place a succession of actions to move towards it.
“If I had told myself that becoming a billionaire was impossible, I believe that it would have become a self-fulfilling prophecy.”
At present, education is one of those broad areas that take a lot of money, and the results are poor. The world of education is opening up more and more to the private sector and has more and more opportunities for companies.
“The needs are dire in the areas of budget management, business and investment – disciplines that are not taught at school. (…) Many people will not have enough money when they retire. I believe there will be a growing need for financial literacy.”
Why Do Rich People Go Bankrupt?
“Most millionaires lost three businesses before hitting the jackpot. (…) The average person has never lost a business. That’s why 10% of the population controls 90% of the wealth.”
There are six reasons why rich people go bankrupt:
- People who grew up without money don’t know how to handle a fortune.
- The euphoria of a new fortune is like a drug that makes them too confident and stupid.
- They can’t say “no” to their loved ones who want to borrow money.
- The individual who makes a fortune overnight has neither the financial education nor the experience to hold onto their money.
- The fear of losing increases with fortune, and the more you are afraid, the more the fear tends to come true.
- Not knowing the difference between good expenses and bad expenses.
The rich become richer because instead of paying more taxes they buy assets, which reduces their annual income and therefore their taxes, and increases their wealth in the long term.
The Power of Spending
Rich people seek to minimize their income and increase their spending to buy assets. The poor do the opposite, they want little expense and a high income (Note: This line of thought of rich dad is the most important of the book according to the author, Robert Kiyosaki). Changing one’s perspective makes it possible to move from a world where money is scarce to a world in which it abounds.
“I use my expenses to become increasingly rich. The average person uses their expenses to become increasingly poor.”
– Rich dad
The 90% of people who have 10% of wealth have not understood that an expense could be either an asset or a liability.
Phase Five of Rich Dad’s Guide to Investing: Giving It Back
Are You Ready to Give Back?
“One of the most important investor controls is having the control over the redistribution of our money into society.”
– Rich dad
The last phase of the plan is to give back. Many rich people are seen as greedy, but in reality, many of them are generous and discreet donors.
When you have achieved your financial goals, contributing to causes you believe in brings a sense of joy.
Many rich people continue to contribute to society well after their death, through foundations.
Why Is It No Longer Necessary to Have Money to Make Money?
“Why not take the time to consider creating an asset, instead of just buying one?”
In the Agrarian Age and the Industrial Age, 10% of the population already shared 90% of the wealth. This is still the case today, but we are now in the Information Age and it has never been easier to create assets.
It no longer matters what family you were born into, how much money you have, or your level of education in order to become rich. You just need an idea, change your perception of the world and challenge the “old ideas” such as:
- “Be a hard worker”
- “The rich are idle and lazy”
- “Go to school and find a job”
“All that a true investor does is transform ordinary earned income into passive income and portfolio income.”
The world is changing fast and the information is rapidly becoming obsolete, which is why we must remain in a learning logic.
Many people today have financial problems because they are looking for job security, and because they buy liabilities with their salary. They do what their parents did before them, regardless of the changing world.
During the Industrial Age, the world was ruled by arms and political power. In the Information Age, Moore’s law prevails (technology doubles its power every two years), and it’s the speed of modems and electronic money that governs.
Some companies now have more power than the states. Through the Internet, anyone can access information and create assets to achieve wealth.
“The most important investment you can make is to perfect your financial literacy and look for new ideas.”
Creativity, financial literacy and having a plan are key elements in the Information Age: an era of rapid change in which opportunities are multiple.
Book critique of “Rich Dad’s Guide to Investing”:
“Rich Dad’s Guide to Investing” was written as a sequel to “Rich Dad, Poor Dad” and “The CASHFLOW Quadrant”, in which the author discusses the lessons learned while younger. In this new book, the author tells how his rich dad guided him to the path of wealth as he left his military service and didn’t have a penny.
The book’s goal is to change people’s perceptions of money in order to get them from a world in which money is scarce to a world in which money is plentiful.
Robert Kiyosaki adapts the lessons that were wisely instilled by his rich dad as he goes through his first experiences in investing and entrepreneurship.
The book is divided into several phases. Phase One, the mental preparation, is the one that takes up most of the book. Therefore, it’s the most important for Kiyosaki, who explains from the introduction that the main difference between a rich person and an average person comes from their way of thinking.
The next phases address the more concrete and technical aspects of investing. Through the lessons of his rich dad, the author encourages us to think about investing by drawing up our own balance sheets and financial statements, as a company would do.
The distinction between the different types of investors is interesting and original. Behind these different adjectives are the modes of thought and action specific to each investor. Robert Kiyosaki wants to show that there are several ways to get rich, and that one of them could be suitable for the reader.
See the other side of the coin
The main contribution of this book is to teach the investor to “see the other side of the coin”. Most investment books are limited to detailing traditional forms of investment that are accessible to the majority, such as buying shares or apartments.
The author opens our mind to another aspect of investing, that of asset creation, by entrepreneurship or investments via IPOs (Initial Public Offerings).
It is a world that may seem inaccessible to ordinary mortals, yet Kiyosaki was able to access it without any other resources other than the priceless financial literacy that his rich dad gave him.
Robert Kiyosaki is a good teacher. He can explain in simple terms what seems complicated in the world of investment. Reading this voluminous book only made it more pleasant.
This summary is part of my challenge to read the 12 best books on investing in 6 months. I launched this challenge when I started my blog to provide the maximum value for the readers.
- A rather unique vision of the world of investment, broader than many other books on the subject.
- A book focused upon pedagogy that is easy to read and accessible to all.
- A call for challenging our beliefs and for adopting new ways of thinking to become rich.
- This book is not an instruction book, it just shows how the rich think about investing.
- The author has gone quite far in the world of investment, a level that most of us will struggle to reach (especially with the IPOs), which can be discouraging.
My rating :
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