Book Notes: Rich Dad Poor Dad by Robert Kiyosaki

My notes on this influential book on financial mindset.

Lesson 1: The Rich Don’t Work for Money

Blaming others for not giving you a pay raise, a promotion, a fair treatment is never going to solve the fundamental problem: you’re not in control of your finance; you depend on someone else for your income. This is an eternal trap.

Stop begging people for more money, for that you will forever be dependent on others. Start using your brain to think about ways to make your own money. Don’t work for money, make money.

My notes: this chapter devotes most of its pages to Robert Kiyosaki’s childhood story featuring him, his friend Mike, his rich dad (aka Mike’s dad), and his educated but financially struggling actual dad. He elaborates at length to explain concepts that are roughly captured in the above two paragraphs. I think the purpose of this lengthy but patient chapter is to avoid abruptly turning away readers who hold completely different views on money (a.k.a his poor dad’s mentality). By slowly opening his readers’ eyes to a different perspective, Robert Kiyosaki avoids leaving a pushy and distasteful impression on us.

Lesson 2: Why Teach for Financial Literacy?

Rule 1: you must know the difference between an asset and a liability. An asset puts money in my pocket. A liability takes money out of my pocket. The rich acquire assets. The poor acquire liabilities that they think are assets.


The rich gets richer because they focus on growing their assets, which in turn boost their income. And then they use their extra income from assets to buy luxuries, while keeping their liabilities limited.

The middle class keeps struggling because they focus on growing their liabilities, which in turn raise their expenses. To feed that rising expense column, they keep maximizing their job income. The cycle just repeats.

And the poor struggles simply because their expenses rise with income.



My notes: this is probably the single most important takeaway from this entire book: know the difference between assets and liabilities, and grow your assets. This concept is probably more well know to some people as “passive income,” the idea that money works to make money for you while you do something else.

How do you measure someone’s wealth?

“Wealth is a person’s ability to survive so many number of days forward—or, if I stopped working today, how long could I survive?” – R. Buckminster Fuller

As an employee who’s also a homeowner, your efforts are generally as:

  1. You work for the company: your effort help the company’s shareholders and owners rich. That’s the purpose of a company.
  2. You work for the government: taxes only go up as you earn more. Most people work from January to May just for the government.
  3. You work for the bank: after taxes, your next biggest expense is usually mortgage (and its interest) and credit card debt.

Lesson 3: Mind Your Own Business

Don’t mistake profession with business. What you study doesn’t have to be what you become. To become financially secure and independent, we need to mind our own business, not spend most of our days working for someone else’s business.

Your net worth, what people often mistake for the true values of their wealth, is often worth less than you think. The moment you sell your asset, government takes a share. Generally, these items depreciate over time as well.

My notes: I think the distinction between business and profession is a really important one to understand. Everyone runs their own business: their life. The important task here is to maximize and protect the revenue of one’s own business. Profession is often what you do to make money for another person’s business.

What are real assets?

  • Businesses that do not require my presence
  • Stocks
  • Bonds
  • Income-generating real estate
  • Notes (IOUs)
  • Royalties from intellectual property such as music, scripts, and patents
  • Anything else that has value, produces income or appreciates, and has a ready market

Keep building your asset column. Once a dollar goes into it, never let it come out. Think of each dollar as your employee who works for twenty four hours a day and for generations. Each dollar in your asset column is a great employee, working hard to make more employees and buy boss a new Porsche.

My notes: this is my favorite (and cutest) metaphor of passive income: each dollar is a tiny worker who makes more dollars. Although at the same time, if I were a sad employee, this would be quite a devastating (and sobering) metaphor.

The poor buy luxury first, the rich buy luxury last.

The rich buy luxury using income generated from their asset. They grow assets first, and then enjoy the rewards reaped from their investments. The poor buy luxury on credit, and then resent the debt they fall into.

Lesson 4: The History of Taxes and The Power of Corporations

In England and America, there were no taxes originally. The idea of a permanent income tax was sold to the mass on the premise of “punishing the poor,” while in reality these taxes punish the very people that voted for them.

The government wants to hire more people to get things done. Once the government gets a taste of money, its appetite only grows. The taxes levied on the rich soon need to be sourced from the middle class, and then trick down to the poor.

What most people don’t understand is that corporations are merely bodies created using legal documents. Corporation income tax is less than that of an individual. Corporation can pay for certain costs pre-tax. The rich takes advantage of this knowledge to protect their wealth.

The war between the haves and have-nots will continue whenever laws are made. It will go on forever. The people who lose are the uninformed.

Legal loopholes in tax codes are often created by the influential and rich, but are vehicles available for anyone to take advantage of, if they minded their own business. Knowledge is power, and knowledge of finance and law give you power and control. Working for money gives power and control to your employer.

Financial IQ is made up of knowledge from four broad areas of expertise:

  1. Accounting: the ability to read and understand financial statements (numbers) and identity strengths and weaknesses of any business
  2. Investing: the science of “money making money.” This involves strategies and formulas which use the creative right-brain side.
  3. Understanding Markets: the science of supply and demand. The technical aspects of the market are emotion-driven. Fundamental or economic aspects of an investment. Whether an investment make sense based on current market conditions.
  4. The Law: the grasp of tax advantages and protections provided by a corporation.
    1. Tax advantages: an individual earns and gets taxed. A corporation earns and then can spend on whatever it wants, and finally gets taxed on what’s left. If you own your own corporation, your vacation in Hawaii can be a board meeting, a car can be business expense, and meals can be partially expensed.
    2. Protections from lawsuits: a rich person surrounds himself with layers of legal protection. A rich person owns nothing, but controls everything. A poor person tries to own everything and then lose it to government or others who sue the rich.

Business Owners with Corporation
1. Earn
2. Spend
3. Pay taxes

Employees Who Work for Corporations
1. Earn
2. Pay taxes
3. Spend

Most of what is introduced in this section really should be taught in schools in my humble opinion. Especially regarding what corporations are, how tax code works for them, and how to protect wealth. It’s knowledge that everyone who wants to be affluent should know and take advantage of.

Lesson 5: The Rich Invent Money

In the real world, it’s not the smart that gets ahead, but the bold. Why develop your financial IQ? You want to have options to navigate the frightening changes ahead and prosper greatly.

Money is not real, just as luck isn’t. They are created. Waiting for the right opportunity is like waiting for all the traffic lights to turn green for five miles before starting your trip.

Money are now made out of nothing. It takes an agreement, a signal, a blip on the screen to make millions out of nothing. Money is whatever we agree it is. We’re in an unprecedented era of humanity where we can work purely with our minds without body labor. This is why you should invest in your financial intelligence.

Robert elaborates on many examples of how he raised money, bought and sold assets without a single penny in his bank. It’s the ability to avoid the obstacle of having no money that makes bank, don’t let “they won’t give me a loan” stop yourself from raising money.

The gist of many of Kiyosaki’s examples is buying low and selling high when you spot an opportunity.

  1. Find an opportunity everyone missed
  2. Raise money
  3. Organize smart people

Lesson 6: Work to Learn, Don’t Work for Money

Learning means everything. Know a little about a lot. Becoming specialized in one skill doesn’t give you the leverage to seek other opportunities, your skill will only be useful to one industry. McDonald’s is successful not because they cook the best hamburgers, but because they are excellent at business systems. Too often, the extremely talented are poor because they focus solely on cooking better hamburgers instead of the business ecosystem around making money off hamburgers. Salespeople are not below you, they communicate value of your work to people. You need to become a salesperson of yourself and your work to drastically increase your income. The more specialized you become, the more you are trapped and dependent on that specialty.

The main management skills needed for success are:
0. Management of cash flow
1. Management of systems
2. Management of people

The most important specialized skills are sales and marketing. In other words, communication. It’s difficult for most people because of the fear of rejection. The better you are at handling your fear of rejection, the easier life is.

My notes: Too many technical folks (engineers in particular) look down on any non-technical positions, especially marketing and sales, for their stereotypical image looks like that cheeky and sly money-lover. What people don’t realize is that marketing and sales define what our product is to our millions of potential users. Engineers work in the highly complex solution space, communication folks work in the articulation space to balance the equation of human desire, product value, and synthesis of the two.

It’s also important to be giving. The more you give, the more you receive, and it works in that order. You can’t wait to receive more and then give. This is why we have organizations like Rockefeller Foundation and Ford Foundation — they know that to become truly rich, we need to be able to give as well as receive.

Chapter 7: Overcoming Obstacles

Even after people become financially literate, they are still roadblocks facing them:

  1. Fear
  2. Cynicism
  3. Laziness
  4. Bad habits
  5. Arrogance

Overcoming Fear

“I have never met anyone who really likes losing money. And in all my years, I have never met a rich person who has never lost money. But I have met a lot of poor people who have never lost a dime–investing, that is.”

It’s okay to be fearful of losing money. The best cure for that is to start early. A little rhyme to help: “if you hate risk and worry, start early.”

To win big, you need to be prepared to lose big. People are so afraid of losing that they lose. The greatest reason for lack of financial success was because most people played it too safe. For most people, the pain of losing money is far greater than the joy of being rich. Everyone wants to go to heaven, but no one wants to die.

If you have dreams of freedom, the first question to ask yourself is: “how do I respond to failure?” If failure makes you weak and throw a tantrum, play it safe. If failure motivates you to learn, don’t let failure hold you back.

Overcoming Cynicism

Unchecked doubt and fear creates a cynic. Cynics criticize, winners analyze. Nobody wants to fix toilets, but that’s not why people invest in real estates. Don’t focus on the noise, don’t criticize, analyze. By avoiding the don’t-wants, they pay a high price.

My notes: When you look at a big opportunity, don’t focus your attention on the trivial details and unpleasantries. Push yourself to focus on the bigger rewards.

Overcoming Laziness

Being busy is one way to avoid taking care of your finances. Some fill themselves with work, some spend time playing golf or watching TV. They all know deep inside that they’re avoiding something important.

The cure for laziness is: a little greed. Rich people forbade the words “I can’t afford” for that it shuts down your brain. Instead, they ask: “how can I afford it” for that it opens up possibilities, excitement, and dreams.

Overcoming Bad Habits

Most people pay bills first, and then pay themselves with the remaining money. But usually there’s little money left. We need to pay ourselves first, and that forces us to think of “how can I pay others so they don’t come and scream at me?” Thus you create the motivation to expand your cash flow instead of just eating the cost. Growth in your asset column is more important than that in the government’s. “If I pay myself first, I get financially stronger, mentally and physically. If I pay myself last, I get weaker, so people like bosses, managers, tax collectors, bill collectors, and landlords push me around all my life.”

This is good money habits.

My notes: this section was a little surprising to me. When most of the financial tips out there talk about “bad habits,” we usually think of “spending too much” or “taking out too many loans.” They focus on expense cutting. This bad habit is growing others’ pockets before your own. Interesting and useful tip to keep in mind.

Overcoming Arrogance

What you know makes you money. What you don’t know loses you money. What you don’t know is important.

My notes: I think we at least learned this one in school. Be humble, be curious, be a voracious learner.

Chapter 8: Getting Started

Robert lays out 10 things to focus on to rewire your financial mindset.

  1. Find a reason greater than reality: the power of spirit: what do you want? What do you not want? Identify these strong passions and use them to fuel your quest, otherwise, everything will sound like too much work.
  2. Make daily choices: the power of choice: every day we can choose to watch TV or read a business book. What we choose to do with every dollar can make us middle class, poor, or millionaire. Invest in education, be humble, and listen to those with great minds for that so-called intelligence combined with arrogance equals ignorance.
  3. Choose friends carefully: the power of association: become friends from all walks of life, but it is the friends with financial finesse who can intellectually talk about money and teach you great things. Don’t listen to financially struggling people for financial advice as those are always cynics. One of the hardest things about wealth-building is to be true to yourself and to be willing to not go along with the crowd. It is usually the crowd that shows up late. If a great deal shows up on the front page, it’s too late. Smart investors don’t time the market, they position themselves for the next wave. The closer you’re to where money is made, the more information and less risks you have.
  4. Master a formula and then learn a new one: the power of learning quickly: you become what you study, so be careful of what you learn. If you don’t like what you do now, you need to study something else. Making money is like baking with recipes: once you master one formula, quickly move on to another.
  5. Pay yourself first: the power of discipline: the three most important management skills necessary to start your own business are the management of cashflow, people, and personal time. Remember:
    1. Don’t get into large debt positions that you have to pay for. (Tip, tenants pay for mortgage)
    2. When you come up short, let the pressure build and still pay yourself first. That will force yourself to come up with new ways of making more money.
      In other words, defend your asset column.
  6. Pay your brokers well: the power of good advice: if a good broker makes a lot of money, that means they can help you make a lot money. Good advice, education, and timely information from professionals are well worth the price. A broker is your eyes and ears in the market every day so you don’t have to be. Learning to work with people who are smarter than you in a technical area is a valuable asset. A company has a board of director, you should too.
  7. Be an Indian giver: the power of getting something for nothing: you must look at more than ROI, what assets do you get for free once you get your initial money back?
  8. Use assets to buy luxuries: the power of focus: develop the mental fortitude to focus your money flow into buying assets instead of luxuries. Buy luxuries with money generated from your assets.
  9. Choose heroes: the power of myth: find heroes who make what you aspire to do look easy. Tap into their tremendous source of raw genius by emulating closely, think like they think, analyze like they analyze. Don’t lose your heroes.
  10. Teach and you shall receive: the power of giving: be generous of what you have. Give and then you will receive back in multiples. But give to receive, you will receive nothing.

I think this book was a worthwhile read. By the standards of the rich, nobody in my family is considered a sophisticated investor with a mindset described in this book. Especially in Chinese culture, the ideal of “no one who rises before dawn 360 days a year fails to make his family rich” still runs through the veins of Chinese civilization since the agrarian days of hardship. Those values are important, for that they are just as applicable in skill learning and success building. But in today’s global, connected, and computerized economy, many of us are no longer breaking our back working under the sun, so such ideal is the opposite of success. How do we increase our financial intelligence to make money work for us? This book definitely reinforced and instilled values that help me make a step in the right direction.

Donny Reynolds

APM at Google, designer at heart. Courage of an entrepreneur, brain of an engineer (twitter: @dovizu)

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