In Rich Dad Poor Dad, author Robert Kiyosaki compares the financial education he received from his “rich dad” to that given by his “poor dad”. These two parables represent a two-fold approach to money and wealth.
The Poor Dad mentality focuses on job security and a standard education, prizeing stability over independence. While the Rich Dad mentality is more entrepreneur-focused. It also includes a higher level of financial intelligence, which Kiyosaki describes as accounting, investing, markets and law.
1. The Poor Dad Mentality
Having to struggle with poverty and not knowing how to manage your money can be overwhelming. This is especially true for those who have little experience investing or managing their finances.
In his book Rich Dad Poor Dad, Robert Kiyosaki explains the difference between the two types of mindsets on money: poor and rich. He also outlines the power lessons that can help people change their financial circumstances.
The Poor Dad mentality is the standard view on work and money, and it’s what most people learn in school and follow their entire lives. It’s a mindset that rewards stability over independence, focuses on working a job for the paycheck instead of investing and growing, and prizes financial security in the short term over long-term wealth.
2. The Rich Dad Mentality
Rich Dad, Poor Dad is a book by Robert Kiyosaki that compares his two fathers, the wealthy entrepreneur (rich dad) and the university-educated professor (poor dad). It’s one of the best personal finance books of all time.
In it, Kiyosaki teaches his two sons to understand how wealth can be built from the ground up. The book also explores how to overcome five obstacles that commonly keep people from building their assets: fear, greed, laziness, downcastness and arrogance.
The Rich Dad mentality focuses on learning to make money work for you instead of using it as a tool to earn a paycheck. It’s a growth mindset that encourages you to pursue your dreams and passions.
3. The Rich Don’t Work for Money
If you’re going to be successful financially, you have to think differently than poor and average people. Most people go through life earning a paycheck and then spending that money on stuff they think will make them happy (which is short-lived), and saving the rest in a conservative manner.
When they do this, they are trapped in a vicious cycle called the Rat Race. Every time they get a raise, it results in an increase in their expenses, and so the cycle continues.
If you want to become rich, you have to acquire assets and reduce liabilities. Assets are businesses that produce income without your involvement, while liabilities are things you owe other people or need to pay off in the future.
4. The Rich Don’t Own Assets
Rich people invest in different assets, which allows them to diversify. Asset allocation is the strategy of putting your money in the right mix of stocks, bonds and real estate.
Wealthy people also use a variety of alternatives, such as private equity and hedge funds. This divergence in capital away from traditional asset classes may be an indication that they’ve been able to accumulate their wealth in new ways, according to Ernst & Young.
Millionaires often keep a small portfolio of stocks, and they like dividend-paying ones for their passive income. Some of them even hold index funds, which offer low management fees and great diversification.
5. The Rich Don’t Own Liabilities
Rich people do not spend their lives buying liabilities like poor and middle class people. Rather, they focus on building their assets and reducing their liabilities. Assets include things that put money in their pocket such as investment real estate, a business, products like books and art, or dividends from stocks and bonds. Liabilities, on the other hand, are expenses that take money out of your pocket.
This is why Robert Kiyosaki says that the Rich Don’t Own Liabilities, they focus on buying assets that put more cash in their pockets. He also believes that they should diversify their assets and buy more than one asset type. This is the best way to increase your net worth. It will help you avoid lawsuits and get a better return on your investments.