I first read Rich Dad Poor Dad when I was in high school, which is well over 15 years ago. It is perhaps one of the top five career and life transforming decisions, right up there with going through Dale Carnegie Training, Toastmasters, selling books door to door with Southwestern, and marrying my wife (in no particular order).
Recently I was testing out an app called Libby, which allows you to link your library card to ebooks and audiobooks available to check out and consume via the app. Most of the books I wanted to read aren’t available digitally or they’re on hold by others. However, Rich Dad Poor Dad was available so I said, what the heck, let’s re-read this sucker and see if I learn anything new.
Rich Dad Poor Dad is often cited as the most influential book for folks in real estate. This book to people’s understanding of financial literacy or how money works is what Morpheus is to Neo in The Matrix. It opens up your eyes. You don’t realize how much of the systems all around is working against you to keep you in the rat race until you take the red pill read this book. What sucks is that none of this is taught in school. I didn’t think too much of this when I was 17 or 18 years old. I kind of just thought that this was a game, like in Mario Brothers. The objective was to accumulate coins to where they spit out more coins for you and you win the game by stop playing the game.
There’s some mindset stuff at the end related to fear of failure or the importance of having sales skills. I didn’t really remember this part when I first read it. It is important but does feel a little bit out of place now and unrelated to the subject.
The biggest takeaway is about financial IQ, which is made up of 1) Accounting aka financial literacy 2) Investing, aka science of money making money 3) Understanding markets, the science of supply and demand 4) The law. Even just understanding the dynamic and effects between balance sheet, income statement, and cash flow statement will put you so far ahead of the game. Knowing that you can be cash flow rich from your rental income but on paper for tax reporting purposes showing a loss through depreciation expense is simply a game changer.
In fact, if you ever read the Berkshire Hathaway shareholder letters you’ll often hear Buffett talk about the discrepancies between GAAP reporting and actual business implications. For example, Berkshire Hathaway owns an insurance business. The premium they collect is suppose to be a liability because theoretically someone can file a claim and you need to have the capital on hand to pay that out. However, if you underwrote the policy properly and the actuarial spreadsheet monkeys calculated the probabilities correctly you should never pay out more in claims than what you collect. Insurance ultimately is a mechanism that helps you spread out the economic burden that you might or statistically speaking one day will have to pay. Meanwhile the cash these companies collected, aka float, they can reinvest it and make even more money, acting as an asset in real life instead of liability on the books.
Overall, it surprised me how much it’s shaped my thinking and mental model. You can say the book motivated me to major in accounting in college. I had no desire to be an auditor or a CPA let’s be absolutely clear about that, but because I enjoyed and wanted to learn what the numbers are telling me. I particularly liked my managerial accounting and financial statement analysis class. Today I can leverage that knowledge to think more strategically planning our business.
Quotables:
The lack of money is the root of all evil.
One of the reasons the rich get richer, the poor get poorer, and the middle class struggles in debt is because the subject of money is taught at home, not in school.
By automatically saying the words “I can’t afford it,” your brain stops working. By asking the question “How can I afford it?” your brain is put to work
There is a difference between being poor and being broke. Broke is temporary, and poor is eternal.
Emotions are what make us human. Make us real. The word ’emotion’ stands for energy in motion. Be truthful about your emotions, and use your mind and emotions in your favor, not against yourself.
For many people, schools is the end, not the beginning
If you want to be rich, you need to be financially literate
Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets
Remember the golden rule. He who has the gold makes the rules.
When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house
Mutual funds are popular because they represent safety.
A problem with schools is that you often become what you study
Employees earn and get taxed and they try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left.
It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal and praying
Most people never win because they’re more afraid of losing.
Failure is part of the process of success. People who avoid failure also avoid success.
Job is an acronym for “Just Over Broke”
Workers work hard enough to not be fired, and owners pay just enough so that workers won’t quit.
Life is much like going to the gym. The most painful part is deciding to go.
Everyone wants to go to Heaven, but no one wants to die.
What I find funny is that so many poor and middle class people insist on tipping restaurant help 15 to 20 percent even for bad service and complain about paying a broker 3 to 7 percent.
Money is only an idea. If you want more money simply change your thinking.
