In August 2011, when I began searching for books that would introduce me to the game of investing, stocks, and finance, Rich Dad Poor Dad stood out from the rest as the go-to book for an introduction. Almost everywhere I looked, this book was at the top of the list, and for good reason, too.
To be sure, I found that there wasn’t much “substance” in Rich Dad Poor Dad. It is not a book that describes in detail how to value companies, select stocks, manage risks, etc.
Instead, Rich Dad Poor Dad serves as a fantastic starting point for the personal finance and investing world by presenting the big picture to readers. Robert Kiyosaki shows the fundamental differences in personal finances between what puts a person in poverty, the middle class, or the upper class.
The rich, Kiyosaki explains, live below their means and invest their excess money in assets that produce cash flow and increase in value over time. This process usually starts out small, like a tiny snowball rolling down a snowy hill. However, if you keep reinvesting the appreciation and cash flow your asset column produces into buying more assets, a compounding effect arises. An asset column is much like a snowball rolling down a snowy hill: the bigger and bigger it gets, the faster and faster it grows.
Kiyosaki contrasts this method of personal finance with the one typically used by middle-class people, who are caught in the never-ending cycle of the rat race. The rat race occurs when people constantly increase their spending as they earn more money, they never have money left over to buy income-producing assets because they are busy keeping the Joneses: buying fancy cars, bigger houses, boats, and not others. They produce income, in fact, mainly depreciating assets.
The result of the wealthy lifestyle is that, over time, the person builds a column of assets that can cover their living expenses: thus freeing them from the clutches of the rat race and giving them the ability to no longer depend on working for 9 to 5. work to cover your expenses. This person can then start increasing their expenses as their asset column grows to cover them.
It’s absolutely key that you first create an asset column that can sustain an increase in spending because once your asset column can cover your expenses, you don’t need to work harder to spend more money – your money works hard for you.
Paraphrasing Kiyosaki:
“The rich buy assets, the poor and the middle class buy liabilities”
Kiyosaki goes on to describe the two basic emotions involved in investing: fear and greed, and the attitude it takes to become a successful investor, entrepreneur, and more.
I highly recommend this book to anyone just starting out.