Rich Dad Poor Dad... Worst Personal Finance Book of All Time?
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I'm not ashamed to say Rich Dad Poor Dad has been one of the most influential books I've read in my life. At 20, I had very little idea about business - I thought my path was clear: graduate with a degree, get a job, work up corporate ladder, etc. Reading this book was completely mind-blowing and eye-opening.
Yes, most of the advice is trivial, as I look at it now.. But there's certainly great value in the book - business vs "rat race", building assets vs liabilities, learning to sell, active vs passive income, what you can't afford your business can, value of financial literacy, and much more. But most importantly this: you can very rarely get rich working for someone else.
No, it may be one of the best paths to wealth and independence --unless you're born into wealth already -- but it's not necessarily a path to success.
My parents worked themselves to the bone in business, were repeatedly screwed by business partners and banks. It didn't give them one bit of gratification.
My mother went back to university and got into not-for-profit microcredit and was reborn as a happy person.
My dad spent time with his kids and neighbours, when he passed away he had three times as many people come to the funeral as we had space for.
Entrepreneurship has a lot going for it, but it is very hard and given the barriers that can be thrown in your face, it can be just another rat-race for lots of people.
You need to fail fast and keep tweaking your idea until it becomes a success. You also can't be married to one single idea. Many people have a problem with this.
Another of Kiyosaki's arguments that I agree with on this matter is that sure, you can become very rich and successful doctor/lawyer/athlete/movie star. But that path requires outstanding talent, athletic skills, intelligence, etc. For an "average" person that doesn't possess any of those, and is not born into wealth, business is the best way to financial success.
Nothing is an absolute guarantee. No matter what the path.
"Were repeatedly screwed by business partners and banks"
If your parents were "repeatedly" screwed over, they really need to take a look at their own decisions. I was screwed over a few times when I was younger. I learned from my mistakes and don't allow people to screw me over.
Your parents might be too honest and nice, which leads to people taking advantage of them. This will happen anywhere, not just business.
"it can be just another rat-race for lots of people."
Some people just aren't cut out to own their own business. My parents, for example, could never own their own business. They are too nice and would get screwed over (my Dad has gotten screwed over more than once in his life in various business deals).
One thing is true: you will never be rich working for other people and this is really the point of the book. For me personally, I would rather make $50K working for myself than $100K working for a large company. It's mostly about the freedom than the money.
Nothing is an absolute guarantee. No matter what the path.
This is a ridiculous statement. You attempt to defend "business as success" by arguing success is never guaranteed. While being a silly argument, more importantly you seem to completely miss what your parent was talking about- he was not discussing how your business might not be successful, but that for many people, success in business != success in life. In the same way that money != happy.
I thought I was pointing out the obvious, but I guess not. Are you one of those people that believes that if you go to college you automatically get a job at the end? It's not guaranteed, but I would still recommend it because it will help you get a job. You are the one being ridiculous here.
The guy I was replying somehow thinks that the book is a guidebook and a guarantee at success. It's not. I was pointing that out.
"While being a silly argument, more importantly you seem to completely miss what your parent was talking about- he was not discussing how your business might not be successful, but that for many people, success in business != success in life. In the same way that money != happy."
Really? His parents were not successful at business so how can that even be used as an example?
If he was really trying to point something like this out, give me an example of someone that is successful at business but not at life.
From my personal experience, once you figure out what it takes to be successful at business, you will be successful at many other things in life.
No, it may be one of the best paths to wealth and independence ... but it's not necessarily a path to success.
Emphasis on "success", not on "necessarily".
I'm done here though, I really shouldn't have replied in the first place anyway.
Any more details on what this one means?
Same with losing any resource that is concentrated in one supplier as an individual but spread out among multiple sources in a business. Could be cash flow/income or could be the loss of any number of real or financial or relationship assets that a diversified business inherently protects against.
Whenever I ask my accountant if I can expense something to the firm, the answer is "We can try"
Reimbursing for mileage becomes tenuous if you work from home. Since you can't count commuting and you have no office, the mileage from your home office to your sales appointment isn't deductible. There are people that work around this by getting a PO Box that they 'check' before they go to a client meeting. A stop at the PO Box or ATM to check their balance becomes a business task. They can't deduct the mileage from their home to the PO Box/ATM, but they can deduct the mileage from the PO Box to the appointment.
Expenses on a business are taken directly against profits - to a degree. If you use a laptop 100% for business, you can deduct that (up to the Section 179 deduction cap) before having to use a depreciation table - typically MACRS5 which is unusually harsh in the tech world. If I had a nickel for the amount of equipment that survived beyond the depreciation table, I'd probably have 30 cents. If you buy that with your personal cash, you are paying for it with post-tax money rather than pre-tax money.
Health Insurance becomes another tricky situation. If you pay for it with the company, it becomes a taxable benefit, but, if you have employees in Florida, offering it to myself as an executive perk means I need to offer it to all employees, and pay 50% of their insurance.
These are brief overviews and an accountant would be the person to ask about what you can deduct and what he's willing to defend if you get audited.
There isn't really that much in terms of accounting to run a business. You get a credit card that you use exclusively for business expenses, and a separate checking account. Income from ventures goes into the checking account, bills for the expenses are paid from that, you pay yourself a monthly stipend. Whether you do a Sole Proprietorship, LLC or S-Corp, your income flows through to your personal tax return. A C Corp is subject to corporate tax, then, when you pay yourself you are taxed again on that money. That is the double taxation that everyone talks about, and, in certain rare situations, can reduce your tax bill. You also need to make sure that the business meets certain criteria and doesn't get treated as a hobby. You can't have dozens of money losing years, taking tax breaks and deductions all the time without the IRS getting suspicious. You can however win that case if you can prove through recordkeeping that you were indeed trying to make a profit, long incubation time, professional bookkeeping/recordkeeping, etc.
As for which company structure you choose, talk with an accountant.
Now, there are reasons to have a company structure rather than just getting 1099s. Two words, well, a word and an acronym: Simple IRA (or a SEP IRA depending on the company's size). Have excess cash? Rather than mucking with the paltry Roth or Traditional IRA, the Simple IRA allows you to put a lot more cash into a retirement fund. Pretax money with a company match that isn't taxed until it is withdrawn when you reach retirement age. Until you get more than 100 employees, this is one of the huge benefits. I believe your 2011 contribution can be up to $11500 with the company kicking in a 3% match of your compensation, not your contribution (i.e. earn $60k/year, you toss $11.5k of your pre-tax income, and the company kicks in an $1800 contribution). There are exceptions depending on age, coverage under other plans, but, it's almost as good as the investment sheltering provided to teachers - though, with their pay scale, very few teachers can really take advantage of the opportunity.
There are always ways around it and it depends on how far you're willing to bend the rules, and, if you bend it far enough to get an audit, whether you're still willing to keep bending.
There was a dialog in 'The Firm' that sums up how things work fairly succinctly. Tom Cruise was pitching the Sonny their tax planning pitch and it went something like:
Mr. Tolar handed you a schedule that virtually guarantees you zero tax with zero risk. [...] You defer your tax in full, even though you have a bankable LP.
Deferred till when?
What do you care, whenever it is, it is still the best interest free loan you'll ever get.
I have met people that will push, bend, and break the law because the penalty when/if they get caught is less than the income they made by using that money to make money.
It isn't something I would do or advocate, but, make sure your accountant is willing to walk up the steps with you to the IRS courthouse if you decide to travel willingly up that path.
In short, get an accountant (probably after April 15) and raise your issues. Tax planning is a very good strategy to have under control.
Added: forgot the reference to the home office deduction.
If you have a home office, it needs to be a space dedicated 100% to the business. It needs to fit the 'archway rule' which means it needs a door or archway that makes it a separate room. It can't be a room that you travel through to get somewhere else, i.e. living room, etc. You can then deduct a percentage of your expenses, electric, water, gas, etc based on the ratio of the square footage of the home office to your entire home. Now, here's the fun part. When you sell the home, if your house appreciated, a percentage of that is considered capital appreciation for the business.
I am pretty sure the number of people who read the book dwarfs the number of people who actually are successful of those readers.
Just look at any book that advocates healthy eating as a way to lose weight and be healthy.
That's why the saying "You can lead a horse to water, but you can't make him drink" exists.
Those two are by no metrics the same.
One of them gives you step by step advice (eat this apple, eat this brocoli don't eat fat) things you can act directly on and that can be measured the direct effect of.
If you follow the advice in most of these books you will loose weight.
There is no external factors involved.
With RDPD the external factors are extreme. Actually following the advice of the book wont make you rich.
Following a diet will make you slimmer.
- "business vs 'rat race'": As others have pointed out, business is certainly not better than the rat race for everyone, or even most people. Based on every study I've ever seen, the reality seems to be that starting a business is only appropriate or beneficial for a small subset of the population. I.e. people with certain unique skillsets, a high tolerance for risk, and boatloads of time to invest.
- "building assets vs liabilities": In other words "make lots of money, and try not to borrow too much." Well, duh. Anyone who would even think to buy a personal finance book can probably appreciate that income is desirable and debt undesirable. They don't need Kiyosaki's help with that.
- "learning to sell": I don't think Kiyosaki offers anything close to a practical guide on improving your sales skills.
- "active vs passive income": Passive income is not a realistic goal for the vast majority of people. Even if you found a successful business, chances are, you will continue to invest large amounts of effort to keep it running profitably. You pretty much have to win the startup lottery if you want passive income. As the term "startup lottery" implies, it's a pretty rare occurrence in the real world.
- "value of financial literacy": This is just the same as saying "it's a good idea to know how to make money." Telling people to have financial literacy is worthless if you don't offer any useful education on finance. It's even worse if you instead offer patently wrong advice, such as ignoring your taxes in order to "pay yourself."
The best book that I have read that emphasizes this point is "The Millionaire Fastlane" — awesome, awesome read ... a must for anyone starting, running, or thinking about creating a business.
Disclaimer: I read it several years ago. But the takeaways of the book that stayed with me to this date are:
* Don't get emotionally attached to the concepts of money and debt. Money is not worth anything by itself and debt is not bad by itself. They are simply tools that you use and you can use them wisely or foolishly.
* Try to invest your money and time in a way that creates recurring income. I.e. a house is a very bad investment because it creates recurring costs rather than income. Of course you need somewhere to live but don't get emotionally attached to the idea that happiness equals living in a fancy house or driving a fancy car.
* Debt is nothing more and nothing less than a tool for creating recurring income as long as the costs of the debt are lower than the income it creates. Discounting for risk etc.
* The way we teach our kids "the value of money" is creating exactly the emotional ties above that will lead them to making bad decisions about their personal finances, and ties their happiness to how much money they have in the bank.
I don't know if these points are what the book says, simply because I don't know how much of it is my own interpretations. But reading this book allowed me to come to a number of conclusions that have been very helpful ever since. I can think more clearly about what money, income, debt and costs really are.
Another big takeaway for me was that you cannot have a healthy relationship with your money until you stop working for the money. Work for passion, curiosity, experience, whatever satisfies your mind, and you will start seeing the bigger opportunities for profit; the ones that can free you from the rat race of selling away your life (time & effort) in the hope of improving it.
Every time someone (like the reviewer) uses the phrase "beat the market," I sigh and shake my head. To hear some people talk, you'd think getting a job was "beating the job market"; riding the bus is "beating the transportation market." Somewhere out there, phantasmic figures are matching opportunities with takers perfectly, so that every prospect becomes break even; every creative, individual, independent action you could take is rendered pointless by unseen forces. You might as well sit on your ass. It's efficient market theory turned demotivational wisdom.
Surely, if there were so much value to my being across town, it would cost me more than $2 bus fare. Or a professional trader would have already found me, told me where to go, and made a profit on the transaction. You can't beat the market.
I only developed a head for business in my 20s, but I imagine that if I had been running lemonade stands and mowing lawns as a kid, I would be immune to thinking that opportunities were for others to discover, or were already exploited, or that being enterprising only brings risk. This is the kind of lesson taught by RDPD, and I wonder if the reviewer has learned it.
This book I read a long time ago, and it truly opened my eyes to another way of thinking.
For someone raised with an employee mindset (as I was), this book turns those notions on their head, and sparks a new way of looking at independence, wealth, debt, income, and initiative.
There are no hard answers found in the book. I don't think there was an intention to provide them. What there is is an explanation of how the world works at a different level (the company owners' level instead of the employee's level).
Like Chris Rock explained the difference between being rich and being wealthy ("Shaq's rich. Very rich. But the guy who signs his paycheck every month, that guy's wealthy."), this book explains how money works.
It seems to me that if you have to buy infomercial time to sell advice, it isnt very good advice, or it isnt going to work. The Rich Dad, Poor Dad books seem to me like a Don Lapre pitch wrapped in a slightly nicer presentation.
Kiyosaki added a note about fictionalizing, which caused a stir.
Finally, if you find it useless, why do you assume that everybody else does so as well?
Oh but they do: for the authors.
The problem with them is that there is little of substance and lots of feel-good hand waving. The good bits could usually be summed up on a page. Compare and contrast, with, say "Founders at Work" where each story is different, unique and interesting in its own way.
Unfortunately, the secret to his success IS the act of giving him twenty more dollars.
I have no use for anyone or anything that comes from a MLM background.
However, I probably would never have read Founders at Work if I hadn't been inspired to get into entrepreneurship by Rich Dad, Poor Dad.
There's not a whole lot of value there beyond confirmation of common-sense ideas, but I don't think that's a scam.
He advocates a slow-carb diet, which has been shown to effectively help people reach a healthy and sustainable weight. He also advocates that people do complex exercises rather than over-focusing on specific muscle groups. That makes up the majority of his health advice, and is not especially controversial and is all fairly common sense. He's basically saying to eat healthy food and to workout regularly if you want to be healthy.
He does throw some stuff in the "love" section that's just meant to sell books, and it's pretty much filler material, but I still wouldn't consider it scammy or bad advice. He's not advocating that people go to extremes like he did.
I loved it. It's a motivational book, but as a disclaimer, I had my "muse" (business with passive income) already running before I read that book. I also had a day job, which I have quit now (actually, by the end of next week). The 4HWW gave me a strong impulse to do the step and quit my job.
And someone else mentioned here already: 4HWW is to give you a mindset. It worked pretty well for me.
Without self-help materials I would still have been a somewhat gifted kid but also a total mess of a human being. Thanks to self help I am becoming more and more self-realized every day.
I am not going to downvote you, because I am genuinely curious what you have against Ferriss. Care to tell me more?
I also like Personal development for smart people by Steve Pavlina.
Tom Butler-Bowdon has a series of books that summarize all the major works in psychology/self help/prosperity/success/etc. Those are a good way to get up to speed and learn what's out there in the genre.
But, just because something isn't perfect, means it's no good. This mindset too, is troubling.
I think it's troubling to over-trivialize or generalize what any book can offer.
At the end of the day, it's up to us as individuals to take the good in everything. I found some things helpful in this book.
It's not at the core of my dominant world viewpoint, but helped me understand how to better (not perfectly, or completely) frame what I wanted in my future. It certainly didn't teach me how to get there.
But on the other hand I think this is the most important part about them, they give people the feeling that they can succeed which is a necessary ingredient to taking risks to making yourself successful.
Like a rough economic cycle, picking up a new skill, or learning to program, sometimes I have to slog through something difficult that does not seem to be getting me anywhere before the light bulb goes on and I realize "oh, THAT'S why this whatever is done that way."
What's that other adage? Fake it till you make it?
I ignored a lot of it (like the risky real estate stuff), but what I took away from it was that you can't get rich working for someone else because you can only work so many hours in a day; you need to start your own business or invest to make lots of money. That seems like common sense now, but it wasn't for me at the time.
I'm not exaggerating when I say this-- I saved up and bought a Mac, bought books on HTML/CSS, PHP, Ruby, MySQL, Photoshop, Illustrator, design, etc., bootstrapped a SAAS company, and now I make a solid living off of it. This took me about 5 years because I started from scratch, but I can say I'm definitely a lot happier with my lifestyle now, than I was before I read the book, as cheesy as it was. Just my two cents.
You can't underestimate the gullibility of the masses when a book starts getting some good initial publicity - the wave becomes its own animal with everyone repeating all of the good things previously said of the book, no matter how right or wrong. Sad to say, I bought and read the book a few years under the same guidance.
Product being up-sold like a time share? Superlative claims like a male enhancement product? Partnering with Donald Trump's hair? Check, check and check.
I once got a book from this Warrior Forum (an online marketing forum) he speaks of, that would supposedly teach you how to earn money online. The main point of this book was that if you want to sell online, you must first find people who are willing to buy online, such as on (you guessed it!) the Warrior Forum itself! Funny enough, on that forum all the praises were positive, suggesting that people are too ashamed to admit they were cheated (or the admins, who took a large cut of all sales on this forum, deleted all posts that could have a negative financial impact). Thank god I downloaded the book!
I know that ad hominem argument is a logical fallacy, but I find it hard to believe the personal opinions of dishonest people.
For your information, Internet Marketing has much more to do with value creation than you probably think. It's a multi-million dollar industry. But if you confuse Internet Marketing with what you see on the Warrior Forum, I can see how it's easy to make that mistake...
When I refer to Internet Marketing as my profession, I don't mean slinging info products in the form of a pyramid scheme. I simply mean working with brands to sell and promote their products online. Big brands though, brands you've probably actually heard of, with legit products that have nothing to do with the Internet! Unfortunately, Warrior Forum is a circle jerk driven by gurus who actually know very little about marketing brands online. They only market their own crappy products.
Is probably one of the better resources regarding Robert Kiyosaki.
I enjoyed RDPD and there were several other Rich Dad books I found very good : Success Stories and Form Your Own Corporation. I can hardly think of dryer subject material than corporate legal structures, but I found the RD book easy reading
He is not unbiased as you say, but "direct competitor" is rather strong.
:-)
Yet for some reason when the field isn't exactly an area of expertise for most HN readers, and the author of the book is giving only common sense financial advice, you get tons of people here saying that the book is pretty decent because it reaffirms common sense financial advice. Never mind that you can find most of this advice on the Internet... For Free!
So my question is, why isn't there more outrage that Robert Kiyosaki wrote a book and charges $11-20/book for common sense advice, but when people try to charge money to teach Ruby, people on HN get angry? Is it the price? Wouldn't you say that to someone who knows nothing about either subject, that a $3K class that teaches you a skill is worth more than a $20 advice book?
A good personal tutor goes much further than reading something on the Internet. Especially something that could increase your yearly salary.
Analyse all the things you pay each month and try to get each of those payments to be less, this is especially easy for things like mobile phone contracts, gym memberships, TV subscriptions, etc. Then you have more money each month. If your cashflow is greater each month, you'll be better off.
I think this advice is applicable to most people and more importantly, its actionable.
The main takeaway point for me, and the most influential. Fresh out of college, I make several times the amount of money my entire family was raised on.
I have not played my hand at entrepreneurship yet (I have a regular job), but discipline is exactly what my poor family lacks. They are very gifted in terms of talent, passion, strong work ethic, but without financial discipline times were always tough growing up.
1) > 1. Education is important, but always second to financial literacy. People turn out poor because they’re not taught financial literacy.
The first one is apparent. I definitely agree that his books, especially the later titles are scammy. However they are not completely without any value. Kiyosaki is more like a motivational guru than a finance expert. I think the message that it's better to produce than to consume is pretty successfully conveyed.
3) >Pay yourself first. Even if the government comes knocking on your door, you deserve to be paid first. The best way to do this, in Kiyosaki’s opinion, is to hide under the umbrella of a corporation. The author fails to recognize the difference between business expenses and personal expenses.
I admit that this is bad advice, but for different reasons. It's something I wouldn't do myself, because it isn't ethical and not because it's not effective. Chances are if you're making below 500k, you can get away with this tactic. Even if the IRS does audit you, there are just so many ways to still make it out alive. (One of my friends used to work for a law firm specializing in taxes.)
Your time is better spent generating products/investments that generate wealth independent of your own input. It's really really hard to get rich as a consultant or even as an employee (though both can generate the capital to kick-start the real wealth generation).
A concept that was illuminated quite brilliantly to me when I read How to Get Rich by Felix Dennis.
However, I personally think intelligence and "balls" play a far bigger role in our ability to generate wealth for ourselves then anyone seems to give credit for. You can read all the books on finance you want, if you're an idiot, you will probably fail to get the returns you want. Same goes if you're a coward.
Personally, I'm lacking a bit in the balls, and hope I'm smart enough. We'll see in the next 10 years or so.
And he does cooperate a lot with Trump: http://www.amazon.com/Why-We-Want-You-Rich/dp/B0013MN78Q/ref...
At the very least they have written several books together.
As has been pointed out, Kiyosaki made up his rich dad.
Time is wealth. Spending time how you want is being rich. Money is the tool that allows that.
How we earn money decides how rich, and wealthy we are. There is a better way to earn money than simply, and only working for money in exchange for our time.
Money you earn in exchange for your time will never be as much as what a business you setup can earn with out you.
This book teaches the difference between working "on" your business instead of in a business, whether it's your own, or someone elses. The E-Myth Revisited drives this point home even further.
Learning that there's another way to earn an income without your time is a powerful lesson. One that I think this post misses.
This book speaks to how there is no such thing as job security. While we in tech might be used to it, the majority of folks aren't.
Learning the only real job security is the security we create ourselves via multiple streams of income is often a troubling lesson to face, realize, accept, and adapt to.
These are huge, key, fundamental lessons that you either get, or you don't.
You can't wake up someone who doesn't know they're asleep, and as is evident here, sometimes we need to remember to learn to take the best good from everything.
Living in a world of possibilities is nothing like living in a world of doubts that accrue to seem insurmountable. We shouldn't live blindly faithful, or blindly doubtful, neither are fruitful.
In short, unconvincing link-bait submitted by the author, using a tactic just as sleazy as what he condemns Kiyosaki for. Would downvote if I could.
The fact that any given concept might not be revolutionary to you in particular is irrelevant.
The perfect example is "pay yourself first". It is catchy and simple way to wrap up the concept of "you can expense things that help you make money to a business".
What this book gave - overall excitement about possible future, that's it. It should not motivate, not educate.
"Turning Your Ordinary Photos into Your Lifetime Employees" - http://www.amazon.com/Automated-Income-Ordinary-Employees-eb...
"Getting Started in Property Flipping" - http://www.amazon.com/Getting-Started-Property-Flipping-Thom...
or even: "Watch TV, Get Rich" - http://www.amazon.com/Jim-Cramers-Mad-Money-Watch/dp/1416537...
Don't spend more then you earn. So why is it bad to destroy your credit rating? Advise is not using credit.
Maybe he wrote the book for Europeans? We don't have a credit rating. Just if you fuck up you get blacklisted and don't receive any credit.
But we don't have a personal bankruptcy system either ;)
Actually it's not that bad to pay yourself first and the government later. You have to eat and make sure you can work. Here we have to pay taxes on invoices even when we didn't receive the money of the invoice yet. So I did the same and didn't pay the tax yet and postponed. It's a bit like taking credit from the government when late you pay interest.
So in some contexts maybe good advice?
Why do people put up with that?
The best take away was his definition of wealth.... when your income from your assetts pay for your lifestyle.....simple as that. thats wealthy.
Yes we do, at least some of us (I don't know about each and every Member State). It's not accessible to most people, since it's locked away behind credit rating bureau's models, but rest assured that there are many places that track e.g. how often you've not paid you phone bill on time.
I much prefer the US approach, at least it's out in the open that it exists, and you have a legal right to access your data.
Laws differ between countries in Europe. Please don't try and generalize unless you're certain there are no exceptions, otherwise it may give people incorrect information. Instead, mention your country specifically.
The other EU countries just do an audit of existing loans, employment history, income, ...
If you miss payments you end up getting blacklisted for loans in the future. So we use some form of credit rating.
So given you've gotten that little detail wrong, forgive me if I'm a little dubious that the UK is the only EU country with personal bankruptcy and credit ratings!
I have a copy of Georg Simmel's "The philosophy of money", which is supposed to be about that.
http://en.wikipedia.org/wiki/Georg_Simmel#The_Philosophy_of_...
The author nailed down the first point, about financial literacy being critical, and people turning out poor because of the lack of it. If this were not true, most if not all summa cum laude graduates would own, instead of just work for, a company; they succeeded in traditional education, but know nothing about finance.
The two others are completely off. RDPD was never meant to be an instruction booklet on how to become rich, much less how to get rich in real estate. He also misunderstood the concept of "paying yourself first" to mean "don't pay your taxes," which is simply false. He made it sound like Kiyosaki is some selfish person who is demanding the rest of the world to be the same; but if you read the rest of the book, he actually points out that rich people are very unselfish, because they give what other people want: jobs, products, services, etc., as opposed to those who just want to be paid more despite being mediocre. He also said that if you want to be rich, you have to give other people what they want.
Kiyosaki's example about being "inspired" by the screaming of creditors and the government is nothing more than that: a personal example. He didn't say everyone should follow that example. In fact, he said a couple of paragraphs later: "If you do not like financial pressure, then find a formula that works for you." And he said a few paragraphs prior: "If you cannot get control of yourself, do not try to get rich. You might first want to join the Marine Corps or some religious order so you can get control of yourself." He's clear about the dangers of falling to the temptation of spending on consumer debt and using investment to cover it up.
Also, that little bit about child labor is odd. It's not like Rich Dad was trying to make millions from his son and his friend. It was more of a lesson to show how employees live their lives; personal experience tends to be a more powerful teacher, after all.
Saying that, I admit that some of the stories in some of his other books were simply repeated from this one. It must be kind of him to assume that the readers of his other books haven't read the others, but it can get annoying reading the same story.
This is not a moral judgment of linking to products you disavow, just intellectual curiosity about the results of such a counterintuitive marketing approach compared to affirmative recommendations of other popular books.
The premise of the book is solid; invest in assets that make money for you without you having to be there. He specifically says in the book a few times that he doesn't necessarily advocate real estate investing, but to invest in what makes financial sense, as long as you invest in something. He gives this as a representative list of such investments:
1) Businesses that do not require your physical presence I.E. a web app that you have someone program once and people pay $10 a month for
2) Stocks
3) Bonds
4) Mutual funds
5) Income generating real estate
6) Royalties from intellectual property
7) Any other recurring sources of income
If you read HN then you already understand the premise of the book. But for society writ large "Rich Dad, Poor Dad" was a wakeup call to reexamine core values and life choices.
But that doesn't make it a good book. I mean, you can get that and more off a single page: http://www.dummies.com/how-to/content/personal-finance-for-d...
Or this one: http://www.dummies.com/how-to/content/making-millions-for-du...
The rest of the book succeeds only in massacring the concepts. Insider trading? Illegal. Real-estate lowballing? The only guarantee is a bad reputation.
It wasn't hard to find lucrative investments in the late 90s. I can't help but wonder what happened to his real estate empire when the bubble burst, if it even existed.
There are many books that do justice to explaining those seven items you've mentioned. Rich Dad is definitely not one of them.
Sounds like a recipe to hand your money over to scamsters. Esp as it was proven out by "Income generating real estate" in the past decade.
They were not "flipping" properties; rather, they bought good properties when the market wasn't inflated, and rented them, maintaining them and keeping the tentants happy.
It does take some work, not as much as being employed of course, but you have to be on top of things and it takes some mindshare.
There's a real estate bubble here in Uruguay because property rentals pay above-average returns - currently way above average, but market forces are pushing them down as they should, rent is starting to drop as more apartments enter the market.
What?! How is that consistent with "invest in assets that make money for you without you having to be there"?
Obviously I'm snarking. The idea that you can generate money and do no work is fertile ground for self-help hucksters.
BTW: I've never met any landlord who ever believed that they weren't earning every penny, and who didn' have scars to show for it.
My father goes to his rental property maybe twice per year, so he most definitely isn't "there". He does have to keep it in mind, pay for repairs, and make some phone calls.
I believe that making money of rent is "earning every penny" because he put all his effort before in creating the capital, but, to make a comparison, he makes the same for his maybe one day a month (plus the initial capital) than I do for a month of work.
So I'd describe it as an "asset that makes money for you without you having to be there".
That said, real estate is certainly no magic bullet. You certainly take on risk, of depreciation and vacancy time and deadbeat tenants. And it's hard work to keep a property maintained or expensive to hire someone to do it. It's not for everyone. These are the points that "Rich Dad" doesn't make and must be included for a balanced perspective.
Not exactly true. Derivatives have significant leverage, often times way more than 5-to-1.
The example of a web app as a passive investment is crazy -- how many apps exist that won't require support, ongoing maintenance, etc? That's significant work.
Stocks, bonds, mutual funds -- the returns here are small enough that you can't generate income to live on without a huge up-front investment. If you could manage a consistent 8% yield you'd be doing well, and it would $1M to generate an $80k annual income.
Real estate -- I know a couple of part-time landlords, and this is not passive work. They have to deal with tenants, maintenance, etc. Sure, you can hire a property manager, but that cuts into your returns.
Royalties -- This is hardly passive. What's the half-life of IP these days? You can write a book, but it will likely be out of print within the year. If you manage to publish something reasonably popular, you'll likely have to build a franchise around it, which means that you'll have to work at writing more books. Even if you hire ghost writers, you have to find them, manage them, deal with marketing, etc.
One of the takeaway lessons I got from b-school was that "there are no long term economic rents". In other words: if something is profitable (easy money), then other people will enter the market and the profitability will decline. Sure, there are barriers to entry, etc. but all else equal the crowd will follow the easy money and suck the profit out of it.
I posted somewhere down the thread that this has been my observation from watching my grandparents and father manage their investment properties (which were their retirement fund as retirement money in Uruguay is only good for basic survival).
"f something is profitable (easy money), then other people will enter the market and the profitability will decline"
Yep, but as you said, there are psychological barriers of entry which make the "short-term" profitability good enough for an individual, yet bad for foreign investors.
For example, you can make a 12% profit off real estate rentals here in Uruguay now, it's shifting downwards due to the market pressure, but for us locals it looks like a low-risk, high-reward investment opportunity, but for people in the developed world, the perceived risk of investing in a South American country is too great (and I'd agree, they need a local partner to avoid getting fleeced by the government, or investing in the wrong places, etc... local knowledge basically).
As it usually happens, I'm currently in debt and cannot take advantage of the investment opportunities (fortunately my parents and grandparents can :) ).
Many years ago, I worked for a property management company who's sole client was a partnership of about 30 people. Between the partners, only two were active partners. The rest did nothing more than show up during the first week of the month to get their disbursement check. This was before direct deposit was widespread.
Of course, the holdings were all commercial, were valued collectively at ~80 million, from initial investments of around ~15 mil (adjusted).
The main problem with "passive" income is that margins on passive income are so low that you need a huge amount of investment to make anything meaningful. You have to keep developing streams of income to replace ones that have burnt out. And you have to keep shoveling your profits back into the venture.
It's a long, hard slog.