Five years ago, I felt like a sucker the minute I completed my $16.95 transaction at the bookstore, as the clerk gleefully said he was looking forward to me coming back to buy the rest of the series. Having a minimum wage employee mocking you as financial moron is a bit of a blow to your ego, but I eagerly drove home with my shiny new copy of this highly recommended best seller. I read the entire book in one afternoon, and I felt pretty inspired to start my financial education. I would even say I have been mildly obsessed with personal finance since reading this book 5 years ago. Within a month, I had opened a brokerage account and bought my first stock, which put me on the road to where I am today. So the facet for this book review: This book made a big impact on me, despite it’s being moronic. Read on if you want the details. Chapter One - Rich Dad, Poor Dad
In Chapter One Kiyosaki lays the groundwork of the story then ends it with the poem “The road not taken” by Robert Frost to give you the idea that you are about to learn how to do things differently, and that will make all the difference… Of course the irony is that since you are reading a NY Times best seller, by reading the book you are actually taking a path very much traveled by. Chapter Two - The Rich Don’t Work For Money
The book begins as an autobiography of a young boy growing up surrounded by kids who were apparently much more well off than he and his friend. They were mocked by their friends for not having the latest clothes and toys, and they decided they needed to learn how to make money. Bob’s own dad was a government worker who didn’t earn a great salary, but his friend Mike’s dad was an entrepreneur who actually owned several businesses. For the rest of the book, Kiyosaki compares his own dad’s, “poor dad’s”, philosophies to Mike’s dad’s, “rich dad’s”, philosophies on money. Rich Dad’s Lesson #1 “The poor and the middle class work for money. The rich have money work for them.” The book actually starts off as a very interesting read, and it makes a very useful generalization as the fundamental difference between the three classes, poor, middle, and upper classes, based on the way each class spends money. Kiyosaki says each group has income and expenses. The middle and upper classes have liabilities, but the defining factor of the upper class is that they have assets. Now the key factor in Kiyosaki’s success is his redefinition of financial terms. He makes the bold claim that a house is not an asset if it is your primary residence. Of course this flies in the face of conventional wisdom and makes Kiyosaki seem controversial, but all he has done is changed his definitions of assets and liabilities as follows: Assets put money into your pocket,
Liabilities take money out of your pocket.
Your house costs you money each month, since you must pay utilities, taxes, maintenance, and generally a mortgage payment. Your house costs you money each month, therefore it is not an asset, it is a liability. Of course in accounting terms the house is an asset, but the mortgage is a liability, but Bob doesn’t go into such boring details. While Kiyosaki gives you patently incorrect definitions for these financial terms, these definitions are actually incredibly useful in starting to think a bit more about money. Using your primary residence as your biggest investment is not a good idea, although it is a widely employed strategy. Chapter Three - Why Teach Financial Literacy
Here Kiyosaki draws some diagrams, which he uses pretty much any time he talks. If you define assets and liabilities the way he does, then they are actually nice aids in thinking about growing your net worth. Kiyosaki draws boxes to represent your cash flow (income and expenses) and balance sheet (assets and liabilities). He shows the relative sizes of each of these for his three groups of people, but one picture in particular really struck a chord with me. It’s labeled as Why the Rich get...
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