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Dad is written in a very long-winded and at times tiresome style. The key points of advice are mostly simple and repeated several times. This summary excludes significant amounts of redundant and unnecessary material. As such, it does not match up with the text of the book 100%, but still encapsulates all the important points. This review also includes small amounts of outside material meant to amplify the author’s points. Most of this is contained within square brackets.] The author had two dads, one of whom was rich and the other ―poor,‖ and they gave him contrasting advice on matters of money, education and life starting when he was a boy. The ―poor‖ dad was the author’s biological father. The rich dad was the father of one of the author’s childhood friends. ―Poor‖ dad was not really poor: He was middle-class and during more successful periods of his life was upper middle-class. However, poor dad lived at the ends of his means over his whole life, was stuck in the ―rat race‖ lifestyle and never amassed any wealth. His life was a constant struggle just to pay off bills, taxes and loans, and his expenses always grew as fast as his income. Rich dad, however, was a multimillionaire. Poor dad was highly educated (had a Ph.D) and worked for large organizations, including the Hawaiian state government. He never had his own business, and though he rose to prominent positions, he always worked for someone else and never became wealthy. Rich dad had only a eighth grade education and owned several businesses. He was a multimillionaire and spent his whole life working for himself. The author grew up in Hawaii and is of Japanese-Hawaiian descent. Personal spending and investment habits are the key determinants of wealth and success. People learn spending habits from their parents. For this reason, class and income mobility is low and it is very hard for poor people to ever unlearn their bad habits and become rich. Constantly educating yourself about matters of finance and business will increase your odds of getting rich. Almost all self-made rich people do this: Their minds are restless and they are constantly improving themselves, improving their business operations and seeking out new investment opportunities. Rich people openly talk to their kids about money management and the family business. Poor and middle class people avoid doing so either because they don’t know about the subjects or because they consider them taboo and inappropriate for children to hear about. Poor dad strongly encouraged the author to become part of ―the system‖ because he saw it as the safest way to get through life: Poor dad wanted the author to get as educated as possible, to find a secure job with good benefits under either a big company or the government, to invest his money conservatively, and to work 30+ years until retirement. Poor dad strongly supported unions, worker benefits, and the importance of government entitlements like Social Security. To accept one’s poverty or middle-class status is a self-fulfilling mindset. If you keep your aspirations small and never think you can achieve wealth, you will stay stuck where you are in life forever.
To become rich, you must have a strong, problem-solving mindset. You must always be looking for ways around your problems. Always search for new investments and new ways to leverage whatever money you have, even if you’re almost broke. Your mentality—not your starting income, not the socioeconomic class you were born into, not whether you are a genius or not, not any other factor—determines whether you get rich or not. Confronted with different advice from his two dads, at the age of nine, the author decided to listen only to Rich dad. Today, he is a multimillionaire businessman. He learned six simple lessons from Rich dad that he will share in this book. Chapter 2 – Lesson 1 – The Rich Don’t Work For Money As a child, the author was lower middle-class but went to school in a wealthy district. Richer kids made fun of him, and he became aware of class differences early in life. He resolved to make himself rich at an early age. The author’s first business as a kid was to melt down empty lead toothpaste tubes that he had collected from neighbors and to cast the molten metal into counterfeit nickels. His parents stopped the operation immediately but encouraged further entrepreneurship. The vast majority of people fantasize about getting rich, but very few of them ever do because they are too cautious and fearful to ever take the necessary business risks. Rich people are bold and take gambles. They also don’t give up when they fail and they learn from and overcome failures. Other people simply walk away once the going gets tough. As a child, the author was good friends with another boy who also was interested in becoming rich. The other kid was Rich dad’s son. The author arranged through the friend to meet Rich dad and become his protégé. An important lesson: To succeed in business, one must think and act quickly and decisively. Opportunities are often fleeting. Have the guts and the money to act. Don’t be consumed with time-wasting self-doubt and endless evaluation of risks. After meeting Rich dad, the author accepted an offer to work for him to learn about business. The job involved working three hours per week cleaning one of Rich dad’s convenience stores. The author did this for three months and found it to be highly monotonous and low-paying. He was also angry and confused because Rich dad never came to the store and he didn’t seem to be learning anything about business. The author wanted to quit and confronted Rich dad about the situation. Rich dad lived in a small, cheap house with his family and worked long hours at his multiple businesses. During the confrontation (which Rich dad had been expecting) Rich dad explained his belief that experience—not formal education—is usually the best teacher, and that the miserable convenience store experience thus had an important function for the author’s life education. The job showed the author how hard and unrewarding working life is for most people. The vast majority of people don’t like their jobs that much and sometimes even hate them, and they don’t feel like they make enough money. But instead of doing something to constructively improve their lives, most people just stay in their jobs because they are too afraid of going broke if they quit and/or because they don’t have the guts to start their own businesses. The average person still dreams of wealth and holds out for their ―big break‖ (some risk-free event like winning the lottery that delivers them into an easy life of wealth), but it almost never happens. The small percentage of people with initiative and courage break out of the rat race and become rich.
Lesson 1: The poor and middle class work for money, but the rich make money work for them. Most people are motivated by fear of failure and rejection, not by passion for something. This controls their lifestyle and job choices. It also explains why most people want jobs that offer good job security and benefits. Poor and middle class people don’t know how to manage their money, which is why they don’t become rich. They have poor impulse control and need the reward immediately: If they make $100, they have to spend $100 or almost all of it quickly. If they don’t spend all of it and manage to amass some small amount of savings, they invest it too conservatively in something like a mutual fund, which is again a choice controlled by fear of failure and loss. If a poor or middle class person gets a raise, they immediately spend it on something: They might buy a bigger house, a nicer car or some expensive new home appliances. While their standard of living might increase as a result, so do their expenses, thus no money ever ends up being saved and the person never accumulates enough money to invest in something that could really change their lives. So, even if a good opportunity comes along, the person can’t take buy into it. Poor and middle class people have the wrong mentality about personal money management, and they never ―get their heads above water.‖ Each day is a struggle just to pay off bills, loans, taxes, and expenses, which all increase as the person’s income increases and as the person keeps making bad choices that reward them in the short-run at the expense of the longrun. [And often, they get locked into the lifestyle and can’t downsize or start saving even if they want to. They have kids, start having health problems and racking up medical bills, and they are unable to take any risks that might interrupt their cashflow, even for one or two months. Maybe they also get married, which makes every financial choice a committee decision in which the spouse often doesn’t want them to change anything since it would affect the whole family.] To be rich, you must have a highly inquisitive way of thinking that leads you to continually selfimprove and to learn, especially about business and money. The vast majority of people just don’t think like this. They are not curious about the world, don’t like going out of their ways to learn new things, and don’t like being pushed out of their comfort zones, either by themselves or by someone else. Most people don’t like learning in their spare time and consider their education complete once they finish formal schooling in high school or college. They get jobs after that, fall into a basically hand-to-mouth lifestyle they probably have significant misgivings about, but never get out of it since they can’t imagine any way out and aren’t willing to research avenues of potential improvement. Rich people always find ways out. This section has described the proverbial ―rat race.‖ It is a lifestyle in which peoples’ poor spending habits preclude them from ever saving enough money to invest and keep them living right on the edge of their means. Since they can’t afford the risk involved with switching careers or starting a business, and since they’re just naturally risk-averse even under good circumstances, they just stay in their ho-hum jobs forever and suck up their dissatisfaction. They can’t complain because they’re afraid of being fired. These people feel trapped by life even though usually they are just trapped by their own bad habits and choices. The two emotions dominating the lives of people in the rat race are fear and greed (poor spending/saving habits). Becoming rich requires high levels of impulse control, a strongly rational mind that can disconnect itself from emotional thinking when necessary, and high levels of personal initiative (i.e. - proactive and willing to take risks). Only a small percentage of the population has these traits, so therefore only a small percentage is rich. Poor people don’t realize that money doesn’t buy true happiness. Money only makes you happy when you first become rich and are able to move up materially and in terms of socioeconomic
status and tangibly experience the improvement. In time, this happiness wears off as rich people become used to their new condition. They lose most of their old, poorer friends and become friends with other rich people who share their high status and have the same sorts of expensive possessions, and therefore they become average again within their peer group. Money in itself only makes you happy if you keep making ever-larger amounts of it in an endless series of short, ultimately pointless ―highs.‖ Chasing money-based gratification can therefore lead to rat race for rich people. Even rich people with more balanced minds can fall into the rat race. Like poor and middle class people, many rich are motivated by fear of losing their money. Instead of retiring and relaxing as they would like to, they keep working to keep their finances secure. This is especially bad if the rich person leads an extravagant lifestyle because the various upkeep expenses are huge, never end, and can easily deplete even a rich person’s coffers in a short period. For example, even after a mansion is paid for, the property taxes, maintenance and repair costs (re-shingling a huge roof is very expensive), utilities costs (the cost of heating and cooling a huge interior volume is very high), and homeowner’s insurance premiums are enormous. Expensive cars are also very costly to insure, fuel (premium gas only) and maintain (often must be taken to special service stations and spare parts are very costly). Nice boats are also colossally expensive to maintain and to keep at marinas—this is consistently mentioned as one of the biggest headaches and classic money drains for wealthy people. Rich people not only become used to these things and therefore feel compelled to work to keep them, but they also are motivated by fear of what their rich peers will think of them if they lose their money or willingly downsize to cut costs. So even rich people can fall into the rat race, and even they can be unhappy in spite of their wealth. [The lesson: Even once you get rich, don’t buy things you can’t afford or don’t need. Live below your means regardless of how rich you are.] It is incredibly important to be in touch with your emotions and your inner desires (understand what is really motivating you and bothering you and what you want out of life), but to not be dominated by your emotions or by impulsiveness. Life is a struggle for knowledge, especially self-knowledge. As soon as you stop learning or conclude that you already know everything you need to know, you become ignorant. The emphasis on getting educated is often motivated by fear. [People stay in higher ed often because they are afraid of getting a job and making it in the real world or because they are not confident in themselves and want crushing academic credentials that will assure them of some level of success before they enter the work force.] History shows that civilizations collapse when the gap between rich and poor grows too large. This lesson is clear, but civilizations fail to take heed since no one cares about history, and the same mistakes are repeated. America is headed on a dangerous path to greater wealth inequality that could also lead it to collapse. Since we have abandoned the gold and silver standards, money is an illusion. Don’t count on the government or your employer to take care of you during hard times. Business schools teach valuable skills and knowledge, but they don’t create true entrepreneurs. As a child, the author’s second business was to create a comic book library in a friend’s basement using old comic books he got for free. He charged a small admission fee and hired a female friend to be the librarian. It turned a respectable profit until it was shut down due to various problems like fighting. While the business was running, the author was making his money ―work for him‖ since the investment was profitable, self-sustaining and required very little upkeep.
Chapter 3 – Lesson 2 – Why teach financial literacy? Rich dad’s son (the author’s childhood friend) ended up taking over Rich dad’s successful businesses and massively expanding. He is now a billionaire. The author retired at age 47 with several million dollars in investments and assets. They continue growing at a healthy rate of return and need very little oversight. The author now spends a large amount of his time writing books and holding seminars that teach other people how to make money. Adaptability to changing economic conditions is a key to success. Always be learning, monitoring markets, exploring new opportunities, and taking the most profitable ones, even if they are in new areas of investment that you are not as familiar with. Financial literacy is the key to wealth. This is rarely taught in schools. Accounting is an extremely important subject for successful businessmen. To become rich, it is critical that you are able to distinguish between assets and liabilities and that you use your resources to acquire assets while avoiding the acquisition of liabilities. Poor and middle class people don’t understand the difference between assets and liabilities and often mistakenly buy liabilities thinking they are assets. Rich people don’t make these mistakes. An asset is something that you own and that generates wealth for you. Shares of stock are an example. A liability is a legal obligation that you own requiring you to pay money to someone else. A loan is a good example. There are two basic yet incredibly important financial sheets that you must understand and keep for yourself: Profit/Loss sheet – Lists income sources and expenses and hence calculates net income Balance sheet - Lists assets and liabilities and hence calculates net worth The two sheets give a near-complete picture of your financial status and your business’ status. The basic problem for poor and middle class people: The person’s expenses are too high and they own too many liabilities. More money won’t always solve your financial problems. Usually, a person’s underlying spending and saving habits persist even if their income changes dramatically, so existing financial patterns are only accentuated. Most people who come into a large amount of money just waste it and are none the better afterward. The common problem for average people: As income rises, the person’s tax burden increases for a variety of reasons the person didn’t foresee. Of course, income taxes increase as they make more, but they also pay more in property taxes since they often move into bigger, more expensive homes (property tax rates are based on the value of one’s house) and spend more money on more misc. consumer goods (sales tax) than before. On the profit/loss sheet, this is represented by an increase under the Expenses category. Also, the typical person accumulates more liabilities as they get richer and buy more stuff, such as houses, cars and anything bought on credit. This skews the balance sheet in the wrong direction. Most people mistakenly believe that their house is their biggest asset. In fact, it is a liability: Most people either never pay off their mortgage or only do so very late in life. They buy their first home on a 30-year mortgage and keep moving every couple years. Each time they move, most of the equity transfers, but the mortgage resets to 30 years again and
each house is usually more expensive than the last, so there is always a large balance to be paid off. Mortgage payments are liabilities. The belief that the federal income tax deduction for mortgage interest somehow offsets the cost of homeownership is observably false through basic arithmetic. Even after the deduction, monthly payments are very large for most people. Property taxes on houses never go away. You always pay them, even after the mortgage is paid off. Houses can depreciate in value, which undermines their value as assets. Money tied up in a home’s equity is money that can’t be used for other, more profitable investments. The author actually made most of his fortune through rental real estate. A house can be an asset if it produces rental income greater than its expenses (taxes, maintenance, etc.) or if it appreciates in value. Many average people spend above their means in order to conform with their friends or with some image of success prevalent in our materialistic society. They spend their money on things that don’t actually make them happy and which they often know will cause them serious financial burdens. They continue doing this anyway even after the problems become apparent. This is a major problem in our country. The author and his friend sat in on many of Rich dad’s meetings with business associates, subordinates, lawyers, and advisors, and they learned many important things that helped them later in life. Always hire advisors who are smarter than yourself and whose areas of expertise coincide with the demands you put on them. Arrogant and insecure people are usually afraid to be around people who are smarter than they are because it intimidates them and reminds them of their own shortcomings. Such people suffer in business and in life. Buying a house that is too expensive is a common mistake that younger people—especially young couples—make. Starting early, they are unable to save enough money thanks to their oversized mortgage payments relative to their joint income. It hurts them in the long run. A house can be either an asset or a liability. The basic, long-term strategy that will lead to wealth: In the early part of your life, use all of your resources (time, money) to find and acquire assets while avoiding the acquisition of liabilities. Use most of the profits from your assets to buy new assets (i.e. – reinvest in your business). Once you have built up a substantial core base of assets that reliably generates high income, in the later part of your life start purchasing some liabilities to enjoy the good life now that you can afford it, and start gambling some of your money (that which you can afford to lose) on high-risk investments that could pay off big. Always live below your means. Chapter 4 – Lesson 3 – Mind your own business Ray Kroc, the founder of McDonald’s, once declared that he was not in the hamburger business, but instead was in the real estate business. McDonald’s stores in aggregate cover an enormous area of real estate, including thousands of prime locations in cities and tourist areas. Kroc had stakes in all of those. The poor have no assets, only liabilities. The middle class have few assets at best, too many liabilities, and liabilities that they erroneously believe are assets.
Examples of possessions that people mistake for assets include expensive golf clubs, TV’s, computers, or nice clothing. None are assets because they don’t generate income and almost never appreciate in value. In fact, they usually begin steeply depreciating in value right after purchase [this is one reason to buy used goods and to avoid ever buying the very latest, most stylish, or most cutting-edge stuff]. Most people overestimate the value of possessions like these, which skews their net worth calculations too high. In fact, most personal possessions—even highly prized ones that cost a lot of money to buy—are worth much less than their owners assume and would be troublesome and time-consuming to sell if the person ever needed the money. Selling them in a hurry to get cash for an emergency will mean even deeper price cuts. Moreover, the sale of large assets (i.e. – things you can’t sell under the table through Craigslist or classified ads) must be registered with the government and is heavily taxed, which essentially diminishes the value of the assets. All of these variables should be factored into net worth calculations in advance. Asset categories: Businesses which you own but don’t have to work at (if you work there, then it counts as a job) Stocks Bonds Mutual funds Real estate income (from rents and appreciation) Notes (IOU’s in which other people have legally promised to pay you money) Royalties on inventions, copyrights, books, music, etc. Elaborating on the long-term wealth generating strategy mentioned earlier, acquire assets starting early in life, but only acquire those that you are passionate about and love owning. The author loves dealing in real estate, so he owns a lot of rental properties and often flips houses to make quick cash. He sells almost all of his properties within seven years and rapidly scales up to newer, more profitable properties through 1031 tax-deferred exchanges. [A good example of a businessman who makes rational as opposed to emotional decisions: The author never gets emotionally connected with any of his properties. He is constantly searching for more profitable replacements and will sell the old properties without hesitation to buy better, newer ones. His behavior is coldly rational and profit-driven.] Starting a business is a risky proposition, and in any case it will take a lot of work to make it succeed. Ninety percent of businesses fail in the first year, usually because the owner doesn’t have enough passion for it or because they didn’t plan ahead properly and made basic business mistakes. Of the remaining 10% that make it through the first year, most have failed by the fifth year. Rich people buy luxury goods (big houses, sports cars, nice clothes) only once they can afford to waste the money. Most of them are actually living below their means. Middle-class people buy luxury goods before they can truly afford to. They buy it all on credit so that they can look and feel rich when they actually aren’t even close. [Real rich people can always spot them a mile away—Jorgensen] Chapter 5 - Lesson 4 – The history of taxes and the power of corporations The middle class pays the highest taxes; the rich pay less.
England and especially the U.S. were originally very anti-tax. It wasn’t until around 1900 that income taxes were instituted in both countries. In both cases, the masses only voted for enactment of the new taxes once they were assured by their politicians that only rich peoples’ money would be taken. In fact, it wasn’t long until income taxes were extended to middle class people as well, and the rich found creative ways to shield their own money from taxation. The rich frequently use corporations to hide their money and assets from the government and to protect themselves from being sued or arrested for mistakes and wrongdoing. Corporations limit the liability of their investors. Government agencies have no incentive to save money. Every time they cut costs, the policy makers in charge of the budget interpret it to mean that the agency doesn’t need more money in the future, and their allocation is reduced. Private businesses have precisely the opposite incentive. Corporate tax rates are lower than individual income tax rates, which is why the rich put their wealth in corporations. Corporations are also eligible for many tax breaks. Rich people are usually rich because they are harder working and more talented than middle class and poor people, and rich people generally expand the size of the economy without cheating anyone else. It is therefore wrong to penalize them for their success through higher income taxes. By nature, the rich are clever, smart and highly adaptable to changes in the economy. They will always find new ways to hide their money from the government. The Section 1031 tax clause is an example of a tax break that the rich successfully lobbied the IRS to adopt. The author has used it many times. The poor and middle class don’t understand the complex tax code and usually end up paying more taxes than they have to since they don’t know about all the breaks. Author’s advice: If you want to become rich, do serious research into the tax code, take all the tax breaks you can and structure your assets to minimize your tax burden. Once you become wealthy enough and your business reaches a certain level of size and complexity, you should hire an accountant and a tax lawyer. Though expensive, they will save you a lot more money than they cost. By age 15, the author knew that he wanted to be independently employed when he grew up. By his mid-20’s, the author was working as a salesman for Xerox. He made a good salary and was one of the company’s top performers. Still, he didn’t like working for someone else and knew he could have more freedom and more money if he started his own business. Using the money he made at Xerox, he started his own real estate holding company on the side [not clearly explained, but the company probably owned store fronts, apartments or houses that were managed by lower-level people who paid the author some share of their business profits]. Though he wanted to work for himself full-time, the business was not profitable enough to provide a good income for several years, and the author had to keep working at Xerox during that period to support himself. Though one of the company’s best salesmen, for years he was consciously focused on a plan to get out. He reinvested almost all of his profits and personal income back into his business (which meant buying more properties) during this period so it would grow as rapidly as possible, and he worked long hours at Xerox to maximize his pay. Within three years, the income from his business equaled his Xerox salary. Not long after that, he quit Xerox and started working for himself full-time. [A good life lesson: Getting rich requires years of struggle and sacrifice during the early part of a person’s life. No one ever just jumps into an instantly successful, high-paying, self-owned
business at the start. It is critical to stay focused and to stick to a multi-year personal business plan.] The elements of ―Financial IQ‖ Accounting Investing (how to invest) Understanding markets The law (as it applies to your business operations and taxes) Know about all the tax breaks and tax loopholes you qualify for and shamelessly use every single one of them. The author recommends creating corporations to own and protect your assets for you. Chapter 6 – Lesson 5 – The rich invent money Most people are born with enormous potential, but they never achieve it because self-doubt holds them back. You need guts to succeed. It’s that simple. ―Guts‖ is the courage to take risks through starting your own business, investing in something, or radically changing your life. If you want to become rich, having guts is often more important than having brains. There are many people with more than enough intelligence to become rich, but they never do because they are risk-averse and play it safe with their lives and career choices. Resisting or ignoring economic changes will impede your success. To be rich, you must always understand how things are changing and adapt to them. A luxury boat is a huge, classic liability for rich people. [This is repeatedly mentioned in the writings of other rich people as well.] Most people can’t recognize good investment opportunities. Rich people can not only recognize opportunities that they come across, but they are creative enough to create entirely new ones. They also actively search for investment opportunities. They work smarter, not harder. Poor and middle class people have comparatively one-track approaches to making money: If they want more, they just work harder at the same job. In the early 1990’s, the author started investing in the Phoenix, AZ real estate market. Housing values were depressed, everyone was trying to sell, but he realized it was a good buy. (One of the basic rules of investment is to buy assets when they are undervalued—most people forget this and run away from markets at the first sign of trouble.) The author bought many distressed residential properties (foreclosures, REO’s) with a relatively small investment of cash, rented them out, and sold them within a short period as the market recovered and the houses appreciated. He used 1031 exchanges to shield his capital gains from federal taxes, allowing him to shunt the profits from each sale towards buying progressively higher-priced properties, which built up his assets. As the Phoenix market improved, the good deals mostly dried up and the author moved on to other, better markets. [A further example of how a good businessman follows the opportunities and is unafraid to invest in new places and trade old assets for new ones without emotional attachment] Saving money in the bank is better than nothing, but is still a horribly inefficient way to build assets. Interest rates are pitiful.
By 1996, the U.S. real estate market had mostly recovered so the author stopped doing most of his business in that sector and shifted to overseas business where there was more opportunity. A good businessman must chase opportunities and be willing to enter new markets. Real estate is the foundation of the author’s income. It provides him with steady, long-term income. He gets quick money from investment in small-cap stocks. Another real estate investment story from the author: Back in the 1990’s, the author was living in Portland, OR for a period. The housing market was depressed at that time and there were many good bargains. He made a habit of routinely jogging around Portland’s neighborhoods, both to get exercise and to take note of how things were changing (i.e. – how many ―For Sale‖ signs there were, whether the neighborhoods were improving or worsening, talk with random people he encountered, etc.). After a while, he noticed one house had been on the market for a long time, so one day he just knocked on the front door and introduced himself to the owner, knowing the person would probably be desperate to sell. The author toured the house and realized it was an essentially solid rental property. On the spot, he made an all-cash offer to buy the house at a significantly discounted price, and the owner accepted. [The lesson: Having a lot of money on hand gives you power in business deals] The author immediately rented out the house to a college professor. The net profits each month were only $40, but that wasn’t the point. After a year, the local housing market had improved and the author was able to sell the place for a $40k profit. Using that profit, he was able to buy another bargain through a 1031 exchange. This time, it was a 12-unit apartment complex—also in Portland—that was an essentially good property, but that the owners wanted to sell quickly because they felt overwhelmed by the landlord business. [Another lesson: In real estate, there are many good bargains to be had from landlords who are sick of the business, even if they own good properties.] As such, the author again got the property for a discounted price--$300k. The author rented out the complex for just two years before selling it for a $200k profit. He did another 1031 exchange to use these profits to buy a larger, $875k apartment complex in Phoenix. Those apartments now provide the author with a $5k monthly profit. The story illustrates how a small initial investment in real estate can be rapidly scaled up if the right market conditions exist and the investor knows about 1031 exchanges. As you get richer, you will start making more connections in the business community and you will be alerted first to better and better investment opportunities. Poorer people don’t know about these. The investments are often very risky but also have huge profit potentials. If you’re rich, you will have enough money to gamble on these risks without endangering your core income. The author now owns a real estate investment corporation with several million dollars of assets. He repeatedly used 1031 exchanges to build it up. He also owns a large portfolio of stocks and makes a lot of money by buying large amounts of cheap stocks from startup companies right before they have their IPO’s. Buying and selling these stocks has made him millions of dollars overall. To be successful, you must constantly improve your financial IQ. Always learn something. The author considers real estate to be a unique type of investment. If done right, profits from real estate renting and appreciation are a safe bet and a steady source of income. The author uses his real estate profits to pay for all of his everyway expenses (which in fact support a very wealthy lifestyle) and then he uses the substantial remainder to play around in risky stock trades. He often loses money in the stock market but overall he gains. The author constantly runs into naysayers in markets all over the country who don’t want to invest in real estate because they claim property values are too high and they ―missed the boat‖
some years back by not buying ―when things were cheap.‖ The author insists that, to the contrary, there are good deals to be found in even the most expensive markets if one looks hard enough. In life, everyone makes mistakes and occasionally suffers serious defeats. This is true even for very rich people—the author admits that he frequently loses money on investments even in spite of his business prowess and years of experience, and the same is true for all of his rich friends. The difference between a rich person and everyone else is that rich people always learn from their mistakes and are not discouraged by setbacks. Poor and middle class people usually just give up when business or investing gets too hard or scary, or they keep making the same mistakes over and over, which keeps them from getting rich. If you want to be successful in real estate investing and in business more generally, learn how to get financing without going through banks. Most people’s plans to start a business and get rich are thwarted by banks who refuse to loan them the necessary startup money. The author has bought many properties without using banks and with little to none of his own money. It can be done. [Along with land contracts, this should be researched] Finally, to be successful in business, choose good advisors (i.e. – lawyers, accountants, other issue experts) who are smarter than you are in their respective areas of expertise. Learn from them. Chapter 7 – Lesson 6 – Work to learn, don’t work for money Having a high IQ and/or a high level of education is no guarantee of wealth. After college, the author got a high-paying job working for the merchant marine, but he quickly quit to join the Marine Corps, where he became a naval aviator. Poor dad thought this was a reckless and stupid choice whereas Rich dad liked it. In reality, the author went from job to job in order to gain different types of skills and experience that would help him later on as a businessman: The merchant marine taught him about international trade, the Marine Corps taught him leadership, and Xerox taught him how to be a salesman. The author was naturally shy at first and needed training to effectively deal with people. The lesson: Choose a career path that teaches you valuable skills and knowledge that you can use for your own business and investments. Have a plan. Don’t be afraid to switch jobs. The author’s first big business deal happened when he was 30: He designed a nylon and Velcro wallet, arranged for a Korean factory to make it, and then had thousands of them shipped to the U.S. for sale. Most people don’t really like their jobs but stay in them for years hoping for a pay raise or for retirement. This is a common trap that millions of people fall into. Also, most people have nowhere near enough money saved for retirement. Many erroneously believe that their savings and 401(k)’s will last longer than they actually do. If you chose to just get and hold onto a normal job and you become highly specialized, work for an organization with unionized employees. You will have good job security. Business acumen—with special emphasis on marketing (i.e. – knowing how to sell yourself and your product/service)—is more important towards success than intelligence. Highly intelligent people typically fail to realize this and dismiss marketing and salesmanship as ―stupid‖ and something beneath them. As a result, they usually fail to ever get rich.
McDonald’s is an instructive example: The quality of the food is bad and most smart people could come up with recipes for higher-quality, better-tasting burgers and fries, but if they started their own restaurant, it would probably lose to McDonald’s since the latter is so good at marketing its product. Higher quality competitors to McDonald’s consistently go out of business or at best capture small segments of the market. Hyperspecialization with some narrow set of skills or knowledge is common in the workforce, especially among very smart people. However, it often decreases a person’s job security and mobility since their knowledge and skills are only applicable within a small career field. These people become trapped in jobs they don’t like and can lose everything if the only employer who needs them shuts down. Rich businessmen usually groom replacements: They find someone with a solid business education and a good personality and have them work throughout their company, moving from one area to another over several years until they learn all aspects of how the company works. The replacements thus become highly skilled generalists before they assume leadership. Main management skills necessary for success: Management of cashflow Management of systems (including your personal time with family, alone, and at leisure) Management of people (marketing, advertising, interpersonal skills) Sales, marketing and negotiation are naturally hard for most people since people fear rejection. To overcome this, take classes and jobs that teach you to deal effectively with others. Use charity donations to reduce your tax burden. Chapter 8 – Overcoming obstacles Even after becoming financially literate, some people still don’t get rich. Here are the reasons why: Fear of losing money o The vast majority of people are instinctively terrified of risking large amounts of money on an investment or business, but risk is always necessary for success. o All rich people lose large amounts of money on bad investments or failed businesses at some point, but they always respond constructively to such setbacks and never give up. Even seasoned investors and businessmen occasionally lose. It’s just part of the game. o Failure should make you smarter and stronger, not weaker and more scared. o If you are too risk averse, you can still have a good life for yourself if you become part of ―the system,‖ get a good, secure job working for someone else and start saving heavily for your retirement starting in your 20’s. The compound interest will pay off big in the long run. By the time you are in your 60’s, you should have enough money to retire comfortably for the rest of your life. Just don’t expect to ever be a multimillionaire. o Middle class people invest their savings too conservatively, if they ever accumulate any savings at all. While this won’t ever make you rich, it’s a lot better than saving nothing. Overcoming cynicism o Most people get overcome by self-doubt and excessive caution whenever they start considering a risky investment. Peers and family members have the same
mentality and usually reinforce these doubts in the potential investor and dissuade them from making any changes. o By default, expect average people to give you bad, uninformed advice when you ask them what they think about your business or investing plans. Always ask yourself whether the person has the relevant background and knowledge to render intelligent advice. (For instance, if you’re considering buying stock in a company, why listen to someone who has never invested in stocks before?) Be confident in yourself and ignore naysayers whose discouragements are poorly reasoned. o Most people are pessimistic when it comes to money and only see all the ways their potential business or investment could fail. They let this blind them to the potential upsides. Laziness (the inability to deal with pressing problems and to make tough choices) o Even many seemingly successful and busy people are in fact lazy: They are lazy about meeting family commitments, dealing with personal problems, or taking care of their health. o It is common for people to throw themselves at their work in order to distract themselves from pressing problems elsewhere that they don’t want to deal with. Habits o Instead of paying off his debts and bills first and then spending and investing the remainder second, Rich dad did the reverse. Though seemingly irresponsible, it kept him on his toes and forced him to always seek out new moneymaking opportunities to survive. Rich dad did this deliberately and recommended it as a good habit. Arrogance o ―Arrogance‖ means being dismissive of new ideas and new things that you don’t know about. Investment and business opportunities are always changing, and you can never afford to be closed-minded. o Always educate yourself in new areas. Read books and consult with experts in new fields. Real estate is a unique type of investment. The author owns many rental properties but manages none of them himself. He employs property managers to do all the work for him. Good property managers are hard to find and are critical to success for absentee landlords. Yes, you can buy properties with little or no money down, and without going to banks. If you invest in the stock market, use ―stops,‖ which are automatic sell orders that kick in once the price of your stock shares drops below a certain point. Using stops frees you from having to obsess over your stock portfolio from minute-to-minute. Don’t feel guilty about wanting to become rich. Society has probably conditioned you to feel bad about devoting your life to making money instead of helping other people or doing something ―noble.‖ Chapter 9 – Getting started Getting started with serious investing or with a business is the hardest part. The second hardest part is getting through the inevitable problems you will experience.
Pieces of advice that will help you be a success: Keep your long-term goals and desires in mind (i.e. – financial freedom, a rich lifestyle, a family) Constantly educate yourself. Read books, listen to books on tape, and go to seminars. Pay special attention to the writings and advice of older rich people (like Bill Gates, Donald Trump, George Soros), especially if they became wealthy through the same type of investments or business you want to get into. Look for consistent themes. Not only will these peoples’ stories and advice give you intelligent ideas for making money, but they will inspire you and make you more positive and confident in yourself. Keep in mind that many smart people are arrogant and hence their advice cannot always be trusted. They may be very knowledgeable in one area, but they fallaciously believe that this makes them experts in other areas where in truth they know little. They are arrogant and become closed-minded to facts and ideas that conflict with their own beliefs because they think they already know it all and are smarter than all their opponents. Again, be judicious about taking business advice from other people, including seemingly smart people. You will get the best business advice from people who have already succeeded and become wealthy in the same field you are interested in. Some of these people are famous and have written books that you can read. Others are low-key people who you can find in your community through various business associations and at social functions. Actively work to identify these people, get to know them, and ask them questions. The author recommends asking them out to lunch as a good interview tactic. People who are fascinated with money usually end up making a lot of it and like talking about it since it fascinates them. Therefore, rich people like talking about money, and there is a reciprocal relationship between wealth and one’s mental focus on money. Poor and middle class people don’t think about money as much because they don’t know as much about it, and they don’t like talking about it. Many poor and middle class people are also emotionally sensitive about their money situations and avoid the subject for that reason. Some lessons can be derived from these facts: 1) If you want to make money, take advice from the rich, and 2) don’t talk about money when you’re around poorer people because it will make them uncomfortable. Opportunities are always coming and going in different markets. Once a profit opportunity has become so obvious that the masses are jumping into it, it’s already too late for you to make any money off of it. To profit, you must be one of the first to get in on the opportunity, and then you sell off at the peak. Use inside information to discover opportunities as early as possible. Your old business knowledge will invariably become obsolete. Always self-educate yourself to avoid this. Self-discipline and determination are two common qualities of rich people. Pay yourself first and your creditors second in order to keep pressure on yourself to find new sources of income. Highly experienced advisors (lawyers, brokers, accountants) are expensive, but once your business operation reaches a certain size, they will be worth it and in fact will save you money overall. Once you need to get advisors, make sure their professional specialties are relevant to your business/investing needs.
Seminars on making money won’t let you get rich quick (that never happens), but they can actually be good sources for clever business and investing techniques. The author has actually gone to many of these and learned about buying foreclosures from one of them, which has made him millions of dollars. Only gamble money that you can afford to lose.
Expensive appliances are another classic money-waster that you should avoid. Chapter 10 – Still want more? Here are to-do’s Periodically, take breaks to step back from your everyday routine to seriously evaluate the direction of your life, the profitability of your investments and the sense behind your broader moneymaking strategy. Identify problems and areas for improvement, and have the courage and decisiveness to make the necessary changes. Seek out successful investors and businessmen who have already done what you want to do. Read about subjects you know nothing about. When bidding on properties, don’t be afraid to make insulting lowball offers. Sometimes you will luck out and it will turn out the seller is secretly very desperate. Other times, even if the bid is rejected, it will at least open a dialog between you and the seller that could still lead to a favorable deal for you. Make lots of offers in general. When you submit a bid on a property, always include an escape clause. If you are a real estate investor, do frequent, on-the-ground research into several different areas you are interested in for several months on end. The author does this by walking or jogging around various neighborhoods as part of his daily exercise routine. He observes how the neighborhoods are changing and talks to random people (homeowners, mailmen, delivery guys, etc.) he meets. Through these activities, he gets a sense for how good areas are for investment. Buy stocks after the market crashes. They’re cheap then. Think big to get rich. If you give up on ever becoming wealthy or start thinking the challenges to wealth are too great and your only option is to stay in your current job, it will become a self-fulfilling prophecy. It doesn’t take money to make money.
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