It’s the story of two different dads, one rich and the other poor.
Author Robert Kiyosaki writes a straight talk account that compares the habits of his fiscally reckless father and the habits of his high school best friend’s rich dad who dropped out of school in the 8th grade.
The poor dad is based on Robert Kiyosaki’s father as Robert grew up in Hawaii.
Written by Kiyosaki in 1997, Rich Dad Poor Dad is a book that compares the habits and mindset of two very different people. The book is balanced between a more empathetic perspective from his poor dad and the wealth-building habits of a rich one.
Though the original book is more than 20 years old, one shining principle still holds true to this day.
You don’t need a high income to be rich
One of the most common lies in personal finance is that you need to earn a six-figure salary in order to become “rich”. It’s just not true.
While it’s true that a high income has the potential to get us rich faster than a lower income, high incomes are not required to build wealth over time, and this point hits hard at the foundation of the book.
Kiyosaki points to three basic money philosophies throughout his book:
It’s not how much you make. It’s about how much you keep
A person who earns $100,000 a year but spends $80,000 is less wealthy than someone who earns $80,000 a year and only spends $40,000. “Cash flow tells the story of how a person handles money,” argues Kiyosaki.
If your level of spending is dangerously close to your yearly income, then you’re setting yourself up for a lifetime of living on the edge, never truly building real wealth.
This is why nearly 20% of six-figure earners still live paycheck-to-paycheck.
The rich let their money work for them
Nobody ever got rich just by saving money. Investing in appreciating assets is how wealth is built, and Kiyosaki spends a lot of time on this crucial topic. “A true luxury is a reward for investing in and developing a real asset,” he said. Money alone is not an asset because it does not appreciate in value.
In fact, inflation reduces the value of money year after year.
What are appreciating assets? According to Kiyosaki:
- Real estate
- Royalties (intellectual property)
- IOUs (notes), and
- Anything with value (precious metals, etc)
Rich people build wealth by investing in appreciating assets, not just with big salaries.
Building wealth is a mindset
“There is a difference between being poor and being broke. Broke is temporary. Poor is eternal,” he wrote. In other words, building wealth and becoming rich starts in the mind. If we believe we can, and make decisions commensurate with our goal of building wealth, amazing things can happen.
How does this happen? Rich people manage their cash flow (money in vs. money out), automate their investments (ie: 401(k)s at work), and communicate effectively with people, Kiyosaki wrote.
Rich Dad Poor Dad is a pointed look at building wealth through basic personal finance principles, not by working high-income jobs, winning the lottery, or getting an inheritance. It’s a great read for anyone looking to build wealth on almost any salary.