Part II - Rich Dad Poor Dad by Robert Kiyosaki ﻿
In part one of this summary we looked at Cash Flow Cycles, escaping the rat race,
the philosophy of Rich Dad VS Poor Dad, and more.
In part two we will cover the History of Taxes,
a secret of the Rich, Obstacles to wealth, plus much more.
Lesson 4 - The History of Taxes and the Power of Corporations
“My Rich dad just played the game smart,
and he did it through corporations - The biggest secret of the rich”
A Brief History of Taxes
“Every time people try to punish the rich,
the rich don’t simply comply. They react. They have the money,
power and intent to change things. They don’t just sit there and voluntarily pay more taxes”
You may have heard the saying
“Nothing is certain except Death and Taxes”
But, for most of human history Taxes were not a certainty at
all and looked much different to the way people are taxed today.
Occasionally Kings, Queens and presidents would collect taxes in an effort to support wars,
but there were no permanent taxes levied against people on their income. But even in times of war,
the highest tax rate in the Roman Empire was only ~3%.
Originally in England and the U.S.A, there were no taxes.
Only in 1874, income tax became permanent in England.
39 years later, the U.S followed suit with the
adoption of the 16th amendment that made income tax permanent.
These permanent taxes were passed into law under the guise that they were to only be
levied against the rich. The poor and middle-class majorities were told that the new laws would only
punish the rich. This decision would end up backfiring and punishing the people who voted
for it, the poor and middle class. Government Bureaucracy VS Capitalism
“As the government grows, more and more tax dollars are needed to support it”
Rich dad saw Poor dad as a government bureaucrat, and himself as a capitalist.
Both are driven by opposite incentive structures.
Put yourself in the shoes of a politician or government employee. Your incentive is
to spend money and hire people. The larger your department or organization becomes,
the more entrenched and respected it becomes. You are incentivized to spend every dollar of
the budget you can, because If you don’t you risk losing it in your next budget. If you
are a politician running for government, you aren’t campaigning on your ability to
cut expenses or balance the budget, you are campaigning on all the things you will build,
create or give to your constituents, and at the end of the day, you aren’t spending
the money from your own bank account, you are spending the populations tax dollars.
Now put yourself in the shoes of Rich Dad, a business owner. Your incentive
is to spend less and only hire when needed. And at the end of the day,
you may deploy your capital in a more efficient manner because it is your money.
“My rich dad did not see Robin Hood as a hero. He called Robin Hood a crook”
This economic theory of taking from the rich and giving to the poor and middle class,
only lasted until the government’s need for more money to sustain itself,
led to the taxes needing to be levied on the middle class and poor.
At this point the Rich found a new way to protect their assets.
The Biggest secret of the rich
The rich found a way to escape and seeked the protection of a corporation.
For most people when they hear the word “Corporation '', they may imagine
something tangible like a large building with hundreds of employees, in reality,
a corporation is just a piece of paper that creates a legal body.
The rich protect their wealth through corporations.
Why? Because it gives them tax advantages over the poor and middle class. Corporate tax rates
are lower than personal income rates. And it also protects them from lawsuits.
How? It comes down to the flow of income.
Take a close look at the order.
An employee earns money, pays taxes and then spends.
A business owner earns money, spends and then pays taxes.
The corporation can do many things that an employee can not,
such as paying expenses before taxes. The business owner's income flows through the
corporation and pays him/her a salary as an expense. If you pay yourself a small salary,
you also avoid the higher tax brackets that higher earning employees need to pay.
The pre-tax dollars here are where the rich find ways to minimize their
tax burden as much as possible through deductions, and other legal loopholes.
Lesson 5 The Rich Invent Money
The mind and your Financial operating system
Most people’s operating system for creating money is “ Get a good job,
work hard and save your way to financial freedom”
The Rich don’t trade their time for an hourly salary. They find ways to build
assets. To build your asset base, you need financial intelligence.
“The single most powerful asset we have is our mind. If it is trained well,
it can create enormous wealth… an untrained mind
can also create extreme poverty that can crush a family for generations”
In today’s information age, your greatest asset is your mind. The old ways of
making money and getting rich don’t work today. Developing financial intelligence
is the key to finding and creating profitable business opportunities.
To gain financial intelligence you need to learn the following
1. Financial literacy - The ability to read and understand financial statements.
The Financial statement of a business can show its strengths and weaknesses.
2. Investment strategies - Investing is the science of money making money.
3. An understanding of Supply and demand
4. An understanding of the law. Be aware of all
state and federal regulations and always play by the rules.
Gaining financial intelligence will allow you to see opportunities outside of the “Get a job,
Work hard and save” model of making money.
Always be learning to improve these 4 areas.
Timing and Courage
“Often in the real world, It’s not the smart who get ahead, but the bold”
Financially intelligent people always have more options for creating wealth because
they are constantly seeking and inventing new ways to invest or build their assets.
You can’t be the one sitting on the sidelines waiting for
the perfect timing or perfect idea to arrive. You need to take action.
Courage alongside a willingness to take calculated risks can make the difference.
Lesson 6
Work to learn - Don’t work for money.
“Job" is an acronym for “Just over broke”. Unfortunately,
I would say that applies to millions of people”
The long view
“Are people looking to where they are headed or just until their next paycheck?”
If you need to get a job and work for someone, work to learn new skills. Most people only
focus on short term benefits and will take a better paying job that teaches them nothing,
over a job that will give them the skills to become successful in the long-run.
When you are first getting started, value learning new skills over money and job security.
Specialization VS Knowing a little about a lot
“Job security meant everything to my educated dad. Learning meant everything to my rich dad”
Poor Dad wanted Robert to become highly specialized and focus on job security,
Rich Dad wanted Robert to know a little bit about a lot.
The main skills you should focus on learning are:
1. Management of Cash flow and how to deploy capital.
2. Management of systems. How to plan and allocate your time efficiently.
3. Management of people. Learn how to hire and motivate a team.
The main specialty skills Robert recommends are sales, copywriting and marketing.
And the main communication skills are writing, speaking and negotiating.
Most people will tell you it isn’t good to jump from one company to another,
but In general, most jobs will not expose you to all of these relevant skills.
Robert considers working for different companies a wise decision,
you will learn more and from the long view perspective this will pay dividends.
Talent VS Financial Intelligence “The world is full of talented poor people”
Talent isn’t enough to become successful. Many
talented people are poor or working at low paying jobs. This is because they
haven’t learnt the skills to leverage their talent into financial rewards.
Lesson 7
Overcoming Obstacles
“The primary difference between a rich person and a poor person is how they handle fear”
Here are five of the reasons people fail to achieve financial success:
1. FEAR. They fear losing money more than making it.
2. CYNICISM - They are cynical and do not believe it is even possible to become wealthy.
3. LAZINESS - They are too lazy to change their habits.
4. BAD HABITS - Their behavior towards money is dictated by their habits.
5. ARROGANCE - They’re arrogant, ignorant and ego-driven.
1. Overcoming the fear of losing money.
Rich and Poor people have fear, but how they deal with fear is different. The Rich are
able to handle the fear of losing money, whereas the poor become parazlyed by it.
Poor people often avoid the topic of fear or money altogether.
The poor look at losses as permanent and irreversible,
the rich look at losses along the journey as inevitable and only temporary.
The key is to take inspiration from your failures along the way.
Knowing that they are a valuable lesson to learn from and are only temporary setbacks.
2. Overcoming cynicism.
“Cynics criticize, winners analyze”
Cynicism and doubts are what keep most people poor.
When you don’t even believe it is possible to become rich and you have self-doubt,
you let opportunities slip past you and you prefer to play it safe.
Cynics will tell you all the reasons why something won’t work,
but have never actually tried it themselves.
Rich people are always analyzing and thinking about how things CAN work.
Poor people are always criticizing and thinking about why things won’t work.
3. Overcoming laziness.
Too many people lazily accept the status quo and don’t strive for something better.
“Rather than saying “I can’t afford it” try to change your mindset to,
“How can I afford it” This opens the brain and forces it to think of solutions”
“I can’t afford it” immediately shuts down your ambition.
A Little Greed (But not too much)
Too much greed is a bad thing,
but Kiyosaki tells us a little bit of greed will help you overcome laziness.
4. Overcoming bad habits.
To develop good financial habits, start by paying yourself first.
The majority of people pay everyone else before they pay themselves. It should be
the other way around. Pay yourself first when you get paid, then everyone else. If you don’t
have enough to pay the government or creditors, this will force you to creatively think of ways
to make more money and repay them. If you pay yourself last, you won’t have this incentive.
5. Overcoming arrogance.
“Many people use arrogance to hide their own ignorance”
Robert often found that people who didn’t know what they were talking about, would
often bluff their way through a discussion with arrogance. Try not to be that person.
When it comes to investing and wealth creation, never assume that you know everything. Always
be open to other people’s perspectives and never assume that you have all the answers.
Lesson 8 Getting Started
To get started on your journey to financial freedom, try the following 10 steps
1. Find a purpose
Find a reason greater than yourself to keep you on track and help push through obstacles.
2. Make daily choices that propel you towards your purpose.
Your spending habits reflect who you are. You can choose to be rich,
poor or middle class every day through your daily decisions. Poor people have poor spending habits.
Ultimately, your future is the compounding of all the small decisions you make each day.
Replace negative thought patterns such as ‘‘I’ll never be rich’’ by thinking about
one thing you could be learning or doing today that propels you towards that financial goal.
3. Choose your friends carefully.
Robert warns us not to listen to poor or frightened people. They will tell you all
the reasons why what you are doing won’t work, but actually have no skin in the game themselves.
Choose which people you want to associate with,
as these people will influence the decisions you make and opportunities you find the most.
4. Master what you have learned, then learn something new.
“ You become what you study”
This is the financial version of “You are what you eat”
For the masses, the formula most used is to Work for money. Wake up,
go to work, pay bills , repeat.
In today’s fast paced economy, it is not so much what you know anymore,
but how fast you are able to learn new things.
There are unlimited ways to make money,
but so many believe they can only become an employee to earn it.
5. Develop self discipline : pay yourself first.
When paying bills becomes more important than paying yourself,
your life is being dictated by those obligations.
If you pay yourself first, you’ll always be building your asset column and you’ll
be less likely to take on consumer debt if you know you have to pay yourself first.
6. Pay well for good advice.
“Information is priceless”
If you aren’t sure how to do something, be willing to pay someone who is already doing that thing.
The information you are paying for will be a tiny fraction of the ROI you will gain in the future.
7. Get something for nothing
Whenever you make an investment, always be focused on at least breaking even as quickly as possible.
Once the asset’s initial investment has been recovered,
any additional income from the asset sitting in your asset column is just
an added bonus and you won’t be kept awake at night thinking of market fluctuations.
8. Use your assets (not your capital) to pay for luxuries.
“Borrowing money is easy in the short-term, but hard in the long run”
Never go into debt for luxuries. Robert just like most people loves luxuries.,
but he will never go into debt to finance luxurious cars or other such luxury products.
Only money generated from assets can be put towards luxury.
This allocation of money and impulse control does require discipline. Most
people lack this discipline and end up becoming servants to the
debt they took on to pay for luxuries instead of focusing on building assets.
9. Find Heroes- We all need heroes to look up to and inspire us on our journeys.
Spend some time and effort choosing a few financial heroes you wish to emulate.
Read about them, listen to interviews with them, learn about their personalities and
channel their energy into the way you conduct your own financial journey.
10. Give and you shall receive
If you can’t teach something, that means you don’t truly understand.
The more you teach others what you know, the more you will learn.
Always be generous with your knowledge…
The more you give, be it knowledge, money, smiles, love …. The more you will receive.
Make sure this giving truly comes from the joy of giving and helping
others and not because you expect to receive something in return.