I’ve read ‘Rich Dad, Poor Dad’, the personal finance and motivation classic, for the first time good few years ago. And despite my memory being as solid as a sieve, there are some things I took out of that book which accompany me to this day and which I reach for as tools to propel my financial self forward. In this series of 4 articles, I am going to take you through the grand majority of the keyline thoughts in the book and my take on them. We are going to go through them chapter by chapter and today we are looking at the foreword, Lesson 1 and Lesson 2.
“There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”
This is the very first quote which appears in the book. The thought it conveys is a challenging one and for me it reverberates through not just the surface layers of understanding where you stand with money but also trough the challenges people from underprivileged backgrounds experience in stepping out of both the poverty and a poverty mindset. I often hear that people are the victims or victors of their own circumstances and that if you are poor, it’s your own fault. And while in extreme cases this can be true, whether we like it or not we are in fact products of our own environments. What makes the situation worse is the sour fact that most of us are a little bit arsy about admitting newcomers into our own spheres, and therefore impeding social mobility. This means that poverty is in fact eternal and the effort to break out of it is not impossible, but it is extreme.
Lesson 1: The rich don’t work for money
“The poor and the middle class work for money. The rich have money work for them.”
The point of this quote, as well as most others in the book is to help the reader to train their mindset into looking at things from ‘rich person’ perspective. And while this quote is true, it’s only entirely true for people born into money and shows a level of privilege many of us aspire to but are handed. Simply speaking, it’s hard to make something out of nothing. So while it’s both possible and desired that your money goes ahead and multiplies on your behalf, to achieve that financial situation you have to have some money to start with. For some of us, we can benefit from generational wealth offered to us by our families. For most, we do not and therefore in order to get started we indeed have a choice limited to working for our money or, for those less risk averse, leveraging cheap debt.
“People’s lives are forever controlled by two emotions: fear and greed”
Although this quote is appealing to my sarcastic brain, it is again only fully applicable to edge cases. Most of us are not edge cases. While some of us do indeed experience fear or greed in response to environmental stimuli, these are not often the actual controls. I can only speak for myself and my dear friends – we experience fear and greed as much as anyone but we are not bound or propelled by these. Instead we are propelled by the need for safety, need for love and sometimes a need for recognition and acclaim. I therefore find this quote not only crude but also inadequate.
“So many people say ‘Oh, I’m not interested in money’. Yet they’ll work at a job for eight hours a day”
This quote is interesting because we are, from childhood, programmed to be good workers, but not good with money. I know, controversial, right? But if you remember going to school, where you were expected to spend a fair bit of your childhood following instructions and doing things exactly as the teacher told you to do, you were in reality being taught to propel the traditional economy forward. Because as workers that’s what we do – we get stuff done. Secondary to that is the concept of working within your field of passion. As example, while many doctors will definitely chose the profession because it pays reasonably well, just as many will see the primary reason as the desire to improve and even save lives.
Lesson 2: Why teach financial literacy?
“It’s not how much money you make. It’s how much money you keep”
I want to agree with this one and it’s hands down in my top three favourite quotes from the book. Mainly, because it lit a fire under my rear few years ago to really learn about paying myself first and forcing myself to save a lot more than I used to. But also because I make enough money to pay for a reasonable standard of living and still keep a chunk in my pocket every month.
If I look at myself 15 years ago, this quote would have made me angry because I was making £600 per month in one of the world’s most expensive cities. How much I was making was the important thing and for me at the time, as well as millions of people on the poverty line then and now, the quote rings of privilege and detachment from the reality of everyday life.
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.” and “An asset puts money in my pocket. A liability takes money out of my pocket.”
I like these two quotes, mainly because they force me to seriously consider whether something is a good investment or not. However, I will say that Kiyosaki’s definition of asset is skewed and not in line with the common definition of that word. Common meaning of the word refers to something of value. Kiyosaki’s meaning refers to something which generates a profit, here and now. This, controversially, puts the home you own as your main residence in the definition of being a liability. However, if you install a tenant and the house suddenly puts money into your pocket, you’re back in the asset space. And I sort of like his play on this definition.
“Cash flow tells the story of how a person handles money”
What can I say…unless you’re hiding your cashflow in a tax haven, this is true. How we manage our money is a clear chronicle of our ability to handle finance, build wealth and get ahead. Have you ever watched these videos on YouTube where a person discloses their monthly spending and they are embarrassed about something they spent on? If I’m not sure that I want to spend on something I try to imagine myself in their shoes – if I was reading out my bank statement to a bunch of strangers, would they find it odd that I spent £30 on a pack of bath salts? Would they think me stupid? Or would they be impressed with me cashing out my FTSE100 holdings right before the market crashed, making 16% return and then re-buying at half-price? (this did not happen, I only made 6% TBH). If you were in that audience, hearing about your own money habits, would you be proud of how you handle money? If not, it’s time to reconsider how you manage your cashflow.
“A person can be highly educated, professionally successful, and financially illiterate.”
True. As a highly educated and professionally successful individual, I used to be a financial moron. It took a hot minute, or ten years, to correct that. But even though I managed to stop my own financial disaster from happening, I cannot tell you how many people also with great education and careers in my peer group are struggling. Please don’t be one of them and you find yourself wondering about your money just dissipating before your eyes, do something about it now.
In the next article we are going to cover Kiyosaki’s headlines from ‘Mind your own business’ and ‘The history of taxes and the power of corporations’ chapters. See you then!