Well, we finally got around to putting thoughts down on paper about the final sections of Rich Dad/Poor Dad by Robert Kiyosaki. It has been very interesting to dissect such a popular and controversial book. Looking at the whole package after coming in blind has allowed us to see the entire picture outside of external influence and to create a balance sheet of Good Dad/Bad Dad advice.
Without further delay let’s finish off Kiyosakis personal finance ‘masterpiece’ and see whether it really should be required reading for any FIRE enthusiast.
What the books is like so far
So far we have had been able to extract pieces of advice that are mostly useful. There are definitely some gems within this book. There are also some absolute stinkers like recommending joining a pyramid scheme to learn sales skills. In theory that alone should be enough to blacklist this book but it deserves a full analysis.
A common thread throughout the book is the mixture of anecdote and ideology with financial advice. Throughout Rich Dad/Poor Dad the author has always tried to tie his advice to basic logic or past experience. So far this has been a mixed experience and one of the negative aspects of the book.
The final three chapters follow on this tradition without swinging too far away from the overall message.
Lessons Of Chapter 7
Structural Factors Are Irrelevant To Success
This is a common theme that we see throughout the book. The author is quick to dispel any thinking that there are structural advantages and disadvantages that influence peoples ability to accumulate wealth. By this point in the book it is clear that in order to stay on message and present a complete guide to wealth building Robert Kiyosaki has to present a simple ‘common sense’ ideology.
The problem is of course, that structural factors do play a significant role in our ability to generate wealth, they always have and everybody is aware of them. To think the economy is a fair, open, and equal market is delusional. This is not to say that there isn’t a market that can benefit many people willing to put the work, just that you there is no truly ‘free market’ with iron clad rules for fair competition.
Why does this matter? For starters, if you are thinking of building wealth we already established that you need to accumulate some capital and the very start. If that is demonstrably more difficult in 2022 than it was in 2002 then you are at a structural disadvantage. It doesn’t matter if you apply the Rich Dad mentality you will still do worse than a benchmark from twenty years ago.
There is a huge difference between encouraging people to give it their all and boomer ‘bootstrap’ logic. The author chose the latter.
Even The Fearful Can Build Wealth
A terrific point. As we get to the tail end of Rich Dad/Poor Dad we already have a solid sense about who the books is really written for. The author himself is pitching to the <10% of people who will aggressively pursue his real estate-centric wealth building approach. In fact, the vast majority of people I know that adore this book are landlords so that tracks.
It is unfortunate that we only get to this key point so far into our journey because a book made for a small minority is not a ‘personal finance book’ it’s a niche guide. Nevertheless Kiyosaki highlights that if you are risk adverse you can start early and low risk by just being an investor.
This road to wealth is slower and potentially less financially rewarding but it is a workable solution. It probably would have been a more useful tidbit in the first chapter but the point is still important.
Balanced People Go Nowhere
The author dislikes the idea of balance, seeing it as a way to avoid risk taking and thus avoid wealth building. To him you have to go unbalanced to build up a head of steam. You have to risk a lot more than you are comfortable to so that you can realize large scale returns.
This is true, you do have to take risks to achieve especially if you are starting from behind. The difficulty in this is of course, the fact that many people who aren’t massive speculators do indeed go somewhere. In fact, there are several people more successful than the author who never took an overleveraged approach.
But this is also a key contextual factor in Rich Dad/Poor Dad, what is an acceptable risk is not well quantified. The author might be risking a 15% loss for the chance of a 45% gain or they might mean mortgaging your entire house to buy NFTs. To many investors, buying individual stocks is a crazy risk. To others buying ETFs is crazy and they keep their money in HISAs. Context is king.
Context is not Kiyosakis strong point and his anecdotes and bad examples are a testament to this. It is not done with any particular malice though, just attempts to shoehorn reality into his ideological frame.
A Note On Arrogance
There is just a quick relevant note at the end of chapter 7. The author talks for 15 lines about avoiding being arrogant and understanding your limitations and the world around you. This is great advice that he didn’t follow and with only 15 lines dedicated to it that’s no mystery.
Lessons Of Chapter 8
Find Your Why And Make Sure It’s Real
A key tenet of many self-improvement guides, finding your ‘Why’ is instrumental in setting yourself up for success and carrying through. Without a clear goal that has both tangible and intangible value you will never be able to achieve it.
This has to be about more than just money, the money is a tool to achieve some goal. For example, if you are investing just to have money you will be much less motivated than somebody who is investing to ensure that their children always have money later in life. Finding your why is key to keeping pace in what is a long process.
There are many different whys though, so make sure yours is real and influential for yourself.
Make Conscious Choices
Another great piece of advice that borrows from a lot of mindfulness training is the idea that you should always be present and aware when making your investment decisions, be they financial or personal. Just sticking to a defined system or going with immediate gut reaction can be very dangerous and lead to large scale losses.
It is important that you maintain a grasp on reality and truly think about what you are going to do before you do it. That doesn’t mean hesitating or being paralyzed by fear, it just means not making stupid rash decisions because you’re excited.
Wealth building is about risk, not stupidity.
Choose Your Circle
Many people will tell you the old adage that if you are the smartest person in the room then you are in the wrong room. This is very true when you have adopted a growth mindset and want to improve your life. Unfortunately this advice often gets caught up on the word ‘smartest’ and people mistakenly mean that you should always strive to be around more educated or intelligent peers.
This is complete nonsense.
Surrounding yourself with smarter people means surrounding yourself with people who have knowledge and experience that you lack. It doesn’t matter if they are a real estate investor or a plumber, having a circle of people who believe in growth and sharing knowledge is important.
There are plenty of intelligent people that will hold back your financial growth and also a few richer people who might steer you in the wrong direction. Choosing the right circle is important but it must not solely related to business acumen. Make sure you chose a healthy social and professional circle.
Always Remain Curious
Remaining curious about the world and how it works is an incredibly powerful personality trait. A lot of the modern world is designed to make us comfortable rather than curious. If you think you have learned everything you need to know then you are most definitely a fool.
The important thing to remember as per the author though, is that knowledge can come from many areas and formal education is often one of the least efficient ways of learning things.
By leveraging your social and professional networks you can learn so much about different parts of life. It’s also equally vital that you remain curious about the world in general. You can’t understand markets without understanding past, present, and future events and trends. You might not be interested in the economy but the economy is interested in you!
Pay Yourself First (Provided You Only Have Unimportant Bills)
This piece of advice as presented is nonsensical until the context is provided. The author states that your wealth building goal should always come before any other liabilities, that is, you should put your money to work building wealth before you should pay your bills.
This sounds like some sort of big brain move that will change your life but really it has aboslutely no benefit one way or the other. Kiyosaki effectively states that it lights a fire under him to be under financial pressure to meet his obligations after paying himself first. He then goes on the state that he really only has unimportant bills that lack secure payment channels.
I highly doubt he pays his mortgages last on his property. However, the broader adoption of this idea is quite good. The difference is that it is ‘pay yourself before discretionary expenditure.’ Fill your investments before you fill your online shopping cart.
Lessons Of Chapter 9
‘To Do’ – Understand The Markets And Take Big Risks
Robert Kiyosaki gives a lot of useful tidbits of advice over the course of the article but really it only boils down to two primary aspects, understanding markets and taking big risks.
You understand the markets but remaining curious, leaning on expertise of professionals and understanding basic economics and relationship building. If you know how real estate deals are done, know what legal and financial steps to take, and understand the market trends you are ready to invest in real estate.
The second step involves actually investing in real estate or in more general terms taking bigger risks for bigger rewards. If you have a high risk tolerance or a great financial cushion you can look to make those 40-50% gains on your investments or to build passive incomes streams sitting at 5-10%. This is no small feat and the author goes into detail about the mindset required to do this (not always helpfully though).
All the same if you can both fully understand risks and go through with taking them, that is the whole premise of this book.
The Key To Wealth Is Converting Earned Income Into Passive Income
This is the end goal of creating wealth. It is not to own 10 houses or 5 businesses or to work 80 hours a week managing these things. It is to create incomes streams that require you to do very little, that is, passive income streams.
Note that no income is entirely passive, you still need to physically do things to manage your wealth from time to time. Even if you pay other people to run your property empire you still have to engage with lawyers, bankers, and managers from time to time. The difference is that this might only take 5-10 hours a week and involve no hard labor on your part.
The most passive income though is invested income. This income only involves ongoing banking and tax filing and rarely requires much outside expertise. The difference here of course is that you’re unlikely to realize returns greater than 3-5%.
Whichever way you choose the end goal is the same, life on easy street.
In purely numerical terms we extracted 43 lessons over the course of the book. That is a huge number of pieces of applicable advice or educational tidbits about the economy. Most of them were clearly put forward by the author and easy to digest. Only a few points were convoluted, wrong, or hidden within context.
In terms of the quality of advice, Rich Dad/Poor Dad provided 4 distinct levels of quality in its mission to educate us financially. The were Great, Good, Bad, and Terrible lessons evenly spread throughout the entire book.
In terms of overall balance the book had 31 worthwhile lessons and 12 worthless lessons. The Great advice was pretty much the exact same as the combined Bad and Terrible advice. This of course means that the largest single category were the lessons that were good but not groundbreaking.
When Kiyosaki gives advice on personal mindset and the basics of starting on your journey the Financial Independence he it is great.
When he gives advice on the social and market aspects of wealth building he is generally good (but not groundbreaking) with a few bad takes along the way.
Finally, when he talks about the economic and political system, and the ideology of capitalism his takes are terrible and often demonstrably false. This is likely because of the recurring theme of Kiyosaki inventing logic and anecdotes to explain his success after the fact.
So overall we have a book that is a great primer to understand the broad consensus about wealth building in the modern economy. However, how it does not do a good job in explaining the actual functioning of the economy because the authors confirmation bias has influenced him heavily.
Rich Dad/Poor Dad is a book about how to set your mindset and financial position up to build wealth with real estate. It is not a serious work on economics nor is it a full ‘how to guide’ but it 100% is a must read for anybody interested in Financial Independence.
What do you think of the book as a whole? Do you love it? Hate it? Is it meh? Let us know in the comments below.