Rich Dad Poor Dad
Rich Dad Poor Dad is a 2000 book written by American businessman, author and investor Robert Kiyosaki. It advocates financial independence and building wealth through investing, starting and owning businesses, and increasing one's financial intelligence. Rich Dad Poor Dad is written in the style of a set of parables, ostensibly based on Kiyosaki's life. Wayne Allyn Root is a fan of the book.[1] According to Kiyosaki, the rules of money changed dramatically when the U.S. went off the gold standard in 1971. For up until that time, "technically, prior to 1971, the U.S. dollar was a derivative of gold. After 1971, the U.S. dollar became a derivative of debt."[2]
Kiyosake defines wealth as the length of time a person can last if he stops working. Thus, assuming a 30-day month, if one's assets are generating $1,000/month and one's expenses are $2,000/month, then one has enough wealth to last 15 days. When one's assets generate $2,000/month and one's expenses are $2,000/month, then one is wealthy. According to Kiyosake's theory, to become rich, one must become financially savvy enough to continue investing one's income in sound assets that will generate more income. One has to become good enough at accounting and investment that instead of avoiding risk as the middle class often does, one can manage risk, making investments that those with less knowledge would not be safe getting into.
Kiyosake encourages the reader to rethink the definitions of assets and liabilities they learned in accounting class. He says people should distinguish assets from liabilities by looking at the cash flows they generate. Under this model, assets are things that produce income (e.g. stocks, bonds, rental properties, etc.) and liabilities are things that take money out of pocket. Thus, many things that credit applications would consider assets – such as an expensive car – are actually liabilities, because one is always having to pay out to support them (e.g. in car payments, maintenance, taxes, etc.) To become rich, one needs to focus on buying assets rather than liabilities.
The author examines the differences between the cash flows of the lower, middle, and upper classes. The lower class receives money from jobs and immediately spends it on expenses such as food, clothing, shelter, fun, etc. The middle class borrows money to spend on expenses (including luxuries) and then spends their salary paying for the debt. The upper class saves money, invests in assets that produce income, and then buys luxuries.
The poor dad in Kiyosake's book looked at a nice car and said, "I can't afford it." The rich dad looked at it and said, "How can I afford it?" He opened a real estate business and bought the car for his business, working with his accountant to make sure he met the criteria for claiming it as a business expense. When he wanted a nice apartment in the city, he opened a restaurant on the floor below so he could claim the building as a business expense. According to Kiyosake, rich people train themselves to see opportunities that others miss, and invest resources accordingly. The middle class, even when they see an opportunity, cannot take advantage of it because they have not saved up the funds.
