Introduction
In "Rich Dad's Guide to Investing," Robert Kiyosaki challenges the conventional wisdom about money and investing. He argues that the path to wealth isn't through traditional employment and savings, but through entrepreneurship and smart investing. This book is a roadmap for those who want to break into the top 10% of wealthy individuals who control 90% of the money.
Kiyosaki's approach is based on the lessons he learned from his "rich dad" (his best friend's father) and his "poor dad" (his own father). He contrasts their different mindsets and approaches to money, using these examples to illustrate the thinking patterns that separate the rich from the poor and middle class.
The book aims to change the reader's perspective on money and investing, encouraging a shift from the employee mindset to that of a business owner and investor. It's not just about making money, but about thinking differently about money and how it works.
The 90/10 Rule of Money
Kiyosaki introduces the concept of the 90/10 rule of money: 10% of people control 90% of the money. This rule applies across various industries, from Hollywood to Wall Street. The author argues that this concentration of wealth isn't just about luck or unfairness, but about how the rich approach investing differently from the poor and middle class.
One key difference is access to certain types of investments. Kiyosaki explains that some of the best investment opportunities are only available to accredited investors - those with a net worth of at least $1 million or a consistent annual income of $200,000. This creates a barrier for those who aren't already wealthy, making it harder for them to access the most lucrative investment opportunities.
However, Kiyosaki doesn't present this as an insurmountable obstacle. Instead, he uses it as motivation for readers to aim higher and think differently about how they approach money and investing.
The Mindset of the Rich
A crucial step in becoming wealthy, according to Kiyosaki, is adopting the mindset of the rich. This involves challenging common middle-class beliefs about money and success.
For instance, the author critiques the standard advice of "Get an education, work hard, save money." While this approach might lead to financial stability, Kiyosaki argues that it won't make you rich. Instead, he advocates for a different approach: purchasing businesses and making investments.
One reason for this is the way the tax system works. Employees typically have to save money from their after-tax income, while business owners can invest pre-tax earnings. This gives business owners a significant advantage in terms of how much money they can invest.
Moreover, Kiyosaki challenges the notion that employment is more secure than business ownership or investing. He points out that in today's job market, the idea of a stable job for life is outdated. Companies often see their stock prices rise when they lay off employees, indicating that being on the investor's side can actually be less risky than being an employee.
The Importance of Financial Literacy
A key theme throughout the book is the importance of financial literacy. Kiyosaki argues that one of the main reasons people shy away from investing is because financial terminology sounds like a foreign language to them. He emphasizes that developing financial literacy is crucial for anyone who wants to become wealthy.
One fundamental concept Kiyosaki focuses on is the difference between assets and liabilities. He argues that rich people never confuse the two, while others often do. For example, many people consider their home an asset, but Kiyosaki argues that if it's not generating positive cash flow, it's actually a liability.
The author encourages readers to invest time in understanding financial terms and concepts. This includes learning how to read and analyze financial statements, calculate important financial ratios, and understand measures like debt-to-equity ratio and return on equity.
Kiyosaki presents this financial education not as an obstacle, but as an opportunity. He argues that investing in financial literacy may be the best investment a person can make, as it opens up a world of investment opportunities that would otherwise seem too risky or complex.
Types of Investors
Kiyosaki introduces different categories of investors, each requiring different skills and attitudes:
Accredited Investors: Those who meet legal requirements for wealth, allowing them access to a wide range of investments.
Qualified Investors: Wealthy individuals who are also financially educated, capable of analyzing business financials and market movements.
Inside Investors: Those who create assets by building their own businesses.
Sophisticated Investors: Inside investors who use their business experience to analyze and invest in other companies effectively.
The author encourages readers to aim for becoming inside investors and eventually sophisticated investors, as these categories offer the most control and potential for wealth creation.
Starting a Business: The Path to Wealth
Kiyosaki strongly advocates for starting a business as a path to wealth. He argues that while becoming an accredited or qualified investor requires existing wealth, starting a business is accessible to anyone with a good idea and determination.
The author shares his own childhood experience of starting a comic book library business from discarded comics, illustrating that entrepreneurship doesn't always require significant initial capital. He also provides examples of successful entrepreneurs like Michael Dell and Jeff Bezos, who started their businesses part-time while still employed or in school.
Kiyosaki emphasizes that starting a business provides options for wealth creation that aren't available to employees. These include reinvesting profits into other assets, growing the business for a future sale, or taking the company public.
Key Principles for Building a Successful Business
Kiyosaki outlines three key principles for building a successful business:
Spiritual Mission: A business needs a guiding purpose beyond just making money. He uses Henry Ford as an example, whose mission to democratize the automobile drove his success.
Team Building: Successful business leaders recognize the importance of building a strong team. They view money spent on their team as an investment that will make them richer in the long run.
Leadership: The ability to lead and bring out the best in others is crucial. Kiyosaki suggests volunteering for leadership roles in various settings as a way to develop these skills.
The Importance of Communication and Sales Skills
Kiyosaki emphasizes that every successful entrepreneur needs strong communication and sales skills. These skills are crucial for various aspects of business, including raising capital, advertising, negotiating, motivating a team, and making sales.
He recommends investing time in sales training programs, particularly those offered by network marketing organizations. These programs can help develop two key skills: the ability to communicate the value of a product effectively and fearlessness in the face of rejection.
The author also highlights the importance of physical appearance and body language in communication. He notes that studies show 55% of a public speaker's impact comes from body language, 35% from how they speak, and only 10% from their actual words.
Becoming a Sophisticated Investor
Once an entrepreneur has successfully built a business, Kiyosaki encourages them to use their experience and income to become a sophisticated investor. This involves taking more control over management, corporate structure, investment decision-making, and taxes to maximize returns.
He illustrates this with an example of how a sophisticated investor would structure a restaurant business differently from average business owners. By creating separate corporations for the restaurant operations and the real estate, the sophisticated investor can spread risk, reduce tax liability, and increase financial returns.
Kiyosaki contrasts this approach with the average person's retirement plan, which might involve saving in a 401k and hoping for good returns. The sophisticated investor, on the other hand, might invest in real estate, stocks, and business ventures, using their experience and financial literacy to make informed decisions and spot the best opportunities.
The Power of Financial Education
Throughout the book, Kiyosaki repeatedly emphasizes the importance of financial education. He argues that this is what separates the rich from the poor and middle class. The rich invest time and money in understanding how money works, which allows them to make better financial decisions and take advantage of opportunities that others might miss or consider too risky.
This education isn't just about understanding complex financial terms or being able to read a balance sheet. It's about developing a different way of thinking about money and wealth. It's about understanding the difference between working for money and having money work for you.
Kiyosaki encourages readers to invest in their financial education, whether through books, seminars, or real-world experience. He sees this as a crucial step in moving from the mindset of an employee to that of a business owner and investor.
Challenging Traditional Advice
One of the recurring themes in the book is Kiyosaki's challenge to traditional financial advice. He questions the wisdom of focusing on job security, saving money, and investing conservatively in mutual funds or a 401k.
Instead, he advocates for taking calculated risks, starting businesses, and making investments that have the potential for high returns. He argues that while this approach may seem riskier, it's actually less risky in the long run because it provides more control over one's financial future.
Kiyosaki also challenges the traditional education system, arguing that it doesn't teach the financial skills necessary for wealth creation. He encourages readers to seek out this education on their own, through books, mentors, and real-world experience.
The Role of Mindset in Wealth Creation
Throughout the book, Kiyosaki emphasizes the importance of mindset in achieving financial success. He argues that the primary difference between the rich and the poor or middle class is not their actions, but their thoughts and beliefs about money.
For example, he contrasts the mindset of "I can't afford that" with "How can I afford that?" The first shuts down possibilities, while the second encourages creative thinking and problem-solving.
He also emphasizes the importance of seeing opportunities where others see obstacles. For instance, where many people see risk in starting a business, Kiyosaki sees an opportunity for financial education and wealth creation.
The Power of Financial Leverage
Kiyosaki introduces the concept of financial leverage - using other people's money to make investments. He argues that this is one of the key strategies that the rich use to accelerate their wealth creation.
He explains various ways to use leverage, from taking out loans to invest in real estate to using corporate structures to minimize personal financial risk. However, he also cautions that leverage can be dangerous if not used wisely, emphasizing again the importance of financial education.
The Importance of Cash Flow
Another key concept Kiyosaki emphasizes is the importance of cash flow. He argues that the rich focus on acquiring assets that generate positive cash flow, rather than just accumulating wealth on paper.
He contrasts this with the approach of many in the middle class, who focus on increasing their salary or the value of their home. While these can increase net worth, they don't necessarily improve cash flow, which Kiyosaki sees as crucial for true financial freedom.
The Role of Taxes in Wealth Creation
Kiyosaki dedicates significant attention to the role of taxes in wealth creation. He argues that understanding tax laws and using them to one's advantage is a key strategy of the rich.
He explains how business owners have more opportunities to reduce their tax burden than employees, another reason he encourages readers to start businesses. He also discusses how certain investments, like real estate, can provide tax advantages that can significantly boost overall returns.
The Importance of Giving Back
While much of the book focuses on wealth creation, Kiyosaki also emphasizes the importance of giving back. He argues that true wealth isn't just about accumulating money, but about using that money to make a positive impact on the world.
He encourages readers to think about how they can use their wealth and business success to contribute to causes they care about, suggesting that this can provide a sense of fulfillment that goes beyond financial success.
Final Thoughts
"Rich Dad's Guide to Investing" is more than just a book about investment strategies. It's a comprehensive guide to thinking about money and wealth in a different way. Kiyosaki challenges readers to move beyond the mindset of an employee and to start thinking like a business owner and investor.
The book emphasizes that becoming rich isn't just about making more money, but about educating oneself, changing one's mindset, and approaching money and investing in a fundamentally different way. Kiyosaki argues that this approach - focusing on financial education, starting businesses, and making smart investments - is accessible to anyone willing to put in the effort to learn and take calculated risks.
While some of Kiyosaki's advice may seem unconventional or even risky, his overall message is empowering. He argues that wealth creation is a skill that can be learned, and that with the right education and mindset, anyone can take control of their financial future.
The book serves as a wake-up call for those who have been following traditional financial advice without achieving the results they desire. It offers a different perspective on money and investing, encouraging readers to take a more active role in their financial lives.
Ultimately, "Rich Dad's Guide to Investing" is about more than just getting rich. It's about financial freedom - the ability to live life on one's own terms, without being constrained by financial worries. By following the principles outlined in this book, Kiyosaki argues, readers can work towards achieving this freedom and building lasting wealth for themselves and future generations.