Rich dad and poor dad is an international bestseller written by Robert T Kiyosaki and edited by Sharon Lechter. It is based on his own life story where he mentions the learning from his two fathers. One is his own father who is a hard-working Ph.D. holder, a salaried but worried professor; The poor Dad. And the other one is his knowledge-giving source, his teacher cum financial advisor, and a businessman; The rich Dad. After reading this book I have extracted certain learned points which I am going to share below. It is totally based on my grasping ability and my way of representing the book. Hope you all put it to good use.
Financial Education or financial literacy:
1. Financial education is a major lack in the current education system. Although we dedicate our whole childhood to our conventional education methods, the main grind of adulthood to earn, manage, and grow money is not taught properly in a single book or subject.
2. Teaching about earning money and teaching about growing money are two different things. Financial education shouldn't be such that it teaches us to run for money throughout our lives. It should be such which teach you how to manage money and let money work for you. When your money with proper management and decisions increases by itself without your personal time investment, it can be said that money is working for you. This whole concept is termed financial independence.
3. Conventional lectures and blackboard classes are not the modes to teach life lessons. Life being the biggest teacher is the best course which pushes you in every moment to learn something. It may be some random skill or lesson but life chores teach it most simplistically. Therefore, practical educations with life examples along with theoretical understanding are the most genuine and the most effective form of education.
4. Conventional education is designed to teach a student to avoid mistakes. But mistakes are part of real life. People that are scared to make mistakes never grow, but schools teach you to be scared of mistakes. In life there's right and wrong, good and bad, winning and losing, success and failure. Most people want to be right, but that's not reality.
5. With proper financial education, financial independence as well as financial freedom can be achieved. Financial education should include basic accounting practices, proper investment practices, basic rules of the financial market, information related to tax, tariff, or levy. Financial independence is achieved once you take care of all these practices. But financial freedom is achieved when you get up to a stage where you are free to take the decision avoiding the number game.
Decision-making power:
6. Decision-making power is what makes people different from others. Each intersection in life street allows you to make a decision. This decision decides your future destination, will it be luxurious or abstemious is decided in that instant. So, if you don't cultivate instant decision-making power, you can't keep up in the race of making money. Your decisions will thrash you to a compromising position where you find yourself behind from what you projected and from others too.
7. There are three broad divisions based on our decision-making power (poor, middle-class, and rich). Poor and middle-class people work for money, and money works for the rich. Poor and middle-class lives are governed by fear and greed. Fear is often misused as security pushes the decisions of the poor and middle class to take the safest and secure path. Whereas calculated risks and aggressive approaches are mostly taken by rich people.
Avoiding the rat race:
8. In your childhood, your parents push you to think of getting a job and earn for your lively hood for the rest of your lives. This indirectly fuels your decisions to sell yourself to the concept of salary, job security, financial security, etc. Even the education system teaches you to follow the contemporary approach to have some and adjust with that. How a rat runs continuously in a rotating wheel powered by it tied with a slice of cheese in front of it, your life resembles the same pattern.
9. A job is a short-term solution to a long-term problem. The real intent to go to a job is to earn. When a salaried person says that he doesn't have any interest in making money, he is blatantly lying and is trying to cover up his real instinct. The salaried person confuses himself in between earning and making. This confusion leads to a path full of traps, the traps in the web of greed and fear. The greed of earning more and the fear of losing more makes him more vulnerable, fickle and stressed.
10. Every person has something which can be quantified by money and few other things which can't be quantified. If most of your things are fueled by money, you develop fear and greed. This is inherited from generation to generation until a radical and unconventional heir breaks the chain.
11. In fact, the origin of inflation, adulteration, and depression are caused due to this ever-rising trait of greed and fear in the masses. This gradually widens the gap between the rich and the poor. The downfall of many big historical civilizations was due to this rising gap only.
Distinguishing between Assets and Liabilities:
12. Asset is something that brings money to your pocket. Liability is something that takes money from your pocket. Therefore, the rich collect assets, and the poor collect liabilities. Liabilities are some form of responsibility too where you don't only spend your money but also spend your time. A rich will never invest his big chunk in buying big liabilities. In fact, having big liabilities like luxurious cars and lavish houses is never a sign of being rich. It's in the mindset that distinguishes the rich and the poor. It's the smart sensing capability to differentiate between liabilities and assets. It's the decision-making capability to acquire more assets.
13. Houses, cars, and jewelry are not termed as assets until they put money into your pocket. If a house gives you a profitable rental income, it can be termed as an asset. Asset and liability can be identified based on the cash flow. If the cash flow is inwards, it's an asset. If the cash flow is outwards, it's a liability. With proper learning and implementation, liabilities can also be converted into assets.
14. There are broadly four asset classes that are business, real estate, papers (stocks, mutual funds, and savings), commodities. Businesses or companies are the best modes of assets if properly run and managed. Robert's cash flow quadrant says there are employees, self-employed, businessmen, Investors in each corner of the world's cash flow.
15. Business and investments on paper control most of the cash flow than the other two. Real estate can be an asset if you can learn to use debt. Proper management of real estate can become some of the biggest assets a person could ever have. Papers are stocks, bonds, mutual funds, and savings. A distributed investment plan can make the papers some of the exponentially increasing assets in your account. Commodities like oil, gas, gold, etc. will not go down soon and can be some of the well-reserved assets for future growth.
Speculating inside out:
16. Asking questions to yourself, to your surrounding, to your silence, about your problems makes you improve from what you were. A question opens the mind, a statement closes the mind. Poor people often end the possibilities of solving a problem but rich people are keen to retrospect, introspect and interrogate to solve a problem. At least the rich people are accounting a probability of solving it.
17. Not speculating your current scenario is directly escaping from success. Learn about accounting, learn about your financial statement, the numbers of your income and expenditure. Make your balance statement and income statement. Dig into your assets, your liabilities and find out the best possible outcomes for the current and future scenarios.
