Book Review: Rich Dad Poor Dad

This is an overview of the book Rich Dad Poor Dad by Robert Kiyosaki

This is the first book in the trilogy of Rich Dad books.

Kiyosaki's bio: Mr. Kiyosaki is a fourth generation Japanese American who was born in Hilo, Hawaii in 1947. He graduated for from the US Merchant Marine Academy and served as a helicopter pilot in the Vietnam war. Robert is an investor and educator and founder of the Rich Dad company whose stated mission is to, “Elevate the financial well-being of humanity.”

Key point: “The idea that it takes money to make money is the thinking of financially unsophisticated people. Money is only an idea.”

This is a book about personal finance. The book says this about itself, “Rich Dad Poor Dad is a true story on the lessons about money that Robert Kiyosaki learned from his two 'Dads.' One Dad, a PhD and Superintendent of Education, never had enough money at the end of the month and died broke. His other Dad dropped out of school at age 13 and went on to become one of the wealthiest men in Hawaii.”

The first dad, who had the PhD, and worked for the government, was Robert’s biological father. He worked all the time, and yet, was always stressed about money. The other dad, who dropped out of school at 13, was Robert’s best friend’s father. This second dad was able to use the extra time he had, from being rich, to teach the boys as they were growing up.

So the story is a tale of contrasting views towards money. For some, money has a sort of evil connotation. Where the explicit pursuit of money is an unholy act. These are people that might be taking the Bible a little too literally. In Matthew it is written that, "It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God." Some people even believe that money is the root of all evil. 

Other people take a more receptive approach to money. These people take the perspective that money is something they have always used, and it is something they will always use. So they figure they might as well learn about it.  Kiyosaki was able to study both sides of the equation and has decided to go with the latter. That is to say, Robert listened to his rich dad. This book details the beginning of Robert's financial education.

As a youngster Robert was taught six lessons about money. And these six lessons now form the core of his book. I will briefly discuss each one. By the way, the lessons Kiyosaki teaches are the lessons of his Rich Dad so I use the two names interchangeably.

Lesson One – The Rich Don't Work for Money

Kiyosaki says, “The poor and the middle class work for money. The rich have money work for them.” Robert says that most people are stuck in what he calls the Rat Race. The reason for this is most people are hamstrung by their lack of control over their emotions. Rich Dad would say, “The pattern of get up, go to work, pay bills, get up, go to work, pay bills ... Their lives are then run forever by two emotions, fear and greed. Offer them more money, and they continue the cycle by also increasing their spending. This is what I call the Rat Race.”

Lesson Two – Why Teach Finanical Literacy?

“Intelligence solves problems and produces money. Money without financial intelligence is money soon gone ... Rule One. You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule.” The definitions are really quite simple. An asset is anything that puts money into your pocket. A liability is anything that takes money out of your pocket.

Lesson Three – Mind Your Own Business

Rich Dad taught Robert that if he wanted to become rich he would need to own (mind) his own business. “For adults, keep your expenses low, reduce your liabilities and diligently build a base of solid assets.” This doesn't mean you can't have nice stuff. It simply points out, “An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first,” on credit. Rich Dad would say, “Let your assets buy your luxuries.”

Lesson Four – The History of Taxes and the Power of Corporation

“The reality is that the rich are not taxed. It's the middle class who pays for the poor, especially the educated upper-income middle class … Employees earn and get taxed and then try to live on what is left. A corporation earns, spends everything it can, and is taxed on anything that is left. It's one of the biggest legal tax loopholes that the rich use.”

Lesson Five – The Rich Invent Money

There are many ways the rich invent money. One example would be to purchase raw land, get it rezoned and sell it to real estate developers looking to build homes or a shopping mall. Another way is trading stocks, in particular, buying stocks of a pre-IPO company. Unfortunately, many of the best stocks aren't available to the average investor. In an attempt to curtail junk bond salesmen the SEC created a classification system for securities. The result was that it now requires too much work for most pre-IPO companies to seek investments from average investors. It usually makes more sense to go to a syndicate of “sophisticated” investors. (note: the Jobs Act of 2012 has changed this)

Lesson Six – Work to Learn – Don't Work for Money

Rich Dad would often say that it isn't money that makes you rich, it's business skills. And, the single most important business skill is selling and communicating. It is for this reason that Kiyosaki often recommends a network marketing company, also known as multi-level marketing. MLM's focus on training and developing their people. Specifically in the areas of selling, communicating, and leadership. So, first wealthy people learn and develop the skills. Then they get the money. The poor want to be paid while they're being trained.

Kiyosaki sees five main obstacles, that people must overcome, if they wish to be rich. They are: fear, cynicism, laziness, bad habits, and arrogance.

To get us moving, Robert concludes by saying, “I offer you the following ten steps as a process to develop your God-given powers.”

1. I need a reason greater than reality – The power of spirit.

2. I choose daily – The power of choice.

3. Choose friends carefully – The power of association.

4. Master a formula and then learn a new one – The power of learning quickly.

5. Pay yourself first – The power of self-discipline.

6. Pay your brokers well – The power of good advice.

7. Be an “Indian giver.” - The power of getting something for nothing.

8. Assets buy luxuries – The power of focus.

9. The need for heroes – The power myth. Emulate your heroes.

10. Teach and you shall receive – The power of giving.

I'll end back where I began. Many people believe it takes money to make money. Kiyosaki thinks this is foolish. “The idea that it takes money to make money is the thinking of financially unsophisticated people. Money is only an idea.” To make more money takes better ideas. Kiyosaki would say we derive betters ideas from being more educated. Specifically in the area of financial intelligent.

How can you use this information right now?

Mind your own business. If you don't already own your own business you need to. ASAP! According to Robert Kiyosaki and Donald Trump, the best option for most people, is to join a network marketing company. This way you can keep the job you have while learning Rich Dad's lesson on the side. If you ask nicely, I might let you join me. :)

N = 1

We've all heard the saying, “If you don't learn from history, you're bound to repeat.” This post is all about learning from history. I was thinking of naming this post, “Live Experimentally.” But I really like the elegance of N=1. N=1 is about self-experimentation. Although, you can do what you want, I'm not really talking about, “Sex, Drugs and Rock 'n Roll.” I'm talking about everyday stuff. I'm talking about learning from our experiences so we can repeat the ones that work and fix the ones that don't.

Is it coincidental that the words “experience” and “experiment” are so similar? Definitely not. I saw an article, on the website of the Worcester Polytechnic Institute, that said, “An experiment is what you do to investigate something. It is the process by which you learn something … An experience is something that happens to you.” As you can see, the only really difference is the intent. If your goal is to learn something, you're leaning towards an experiment. If you're just coasting, and letting things happen, you're in the realm of experience. Both are useful. But, again, this post is about learning. So, we need to learn how to set up an experiment.

As you probably know, the letter N denotes the sample size in a scientific experiment. N=1 means a self-experiment. We most certainly cannot draw general conclusions from self-experimentation. However, we can definitely increase our effectiveness. The goal of N=1 is to become more effective. It's not to figure out some advice that we wish to impart on others. For the most part, you're probably going to want to keep your results to yourself. So, let's take a step back and review the scientific method.

I won't get real deep into it, let's just keep it simple. Science is fueled by curiosity. The first step is experience. Experience is an integral part of experimentation. Through our experiences, and observations, we wonder about the way the world works. We do a little bit of investigation so we can establish our viewpoint. This is our hypothesis. If we're smart, we test our hypothesis by running an experiment. Then we review the outcomes (the data) of our experiment to see if the hypothesis was wrong (you can never really prove that a hypothesis is “right.”)

If the hypothesis is proven to be incorrect, we throw it out and come up with a new one. That is to say, we come up with a new theory. Conversely, if the hypothesis is supported by the evidence, we want to tweak one variable and rerun the experiment. This is critically important. Ultimately what we looking for is something called the “mechanism.” I won't get into it other then to say that you want to change your variables one at a time. This will allow you to establish which is the key variable. What we're looking to do is distinguish between correlation and causation. Meaning, it decipher between what is cause versus what is merely connected.

This is something we all do rather intuitively. Let me give you an example. For the most part, people get sun-burned when it's warm outside. So, if we don't know how isolate our variables, we might think that warm weather causes the skin to burn. Of course, all we have to do is change one variable at a time to see if that hypothesis (warm weather burns) is accurate. A simple way of doing this would be to wear the same clothes, on a different warm day, and stay out of the sun. It doesn't take long to figure out that the sun is the culprit. The sun is the mechanism that burns skin. Had we put on a lot on clothing AND stayed out of the sun, we wouldn't know which is which. Changing two variables is of no help.

In the jargon of science, warm weather is correlated with burnt skin and the sun causes burnt skin. This is a distinction that messes a lot of people up. Of course, I intentionally used a very simple example to illustrate the point. We all know that warm weather doesn't cause sun-burns. You don't have to understand electromagnetic radiation to know that the light, coming from the sun, is what fries our skin. Incidentally, I am, in no way suggesting that you stay out of the sun. Sensible sun exposure is an important part of overall healthy living.

What I'm saying is to live experimentally. Practice is pretty much all that's required. With time, it becomes second nature to isolate your variables. Of course, sometimes changing one variable at a time is impossible. But there are all kinds of ways to construct personal experiments to figure out what's working, in our lives, and what's not.

I guess there's something of a paradox here. In science you generally want N to be as big a number as possible. In other words, you want as large a sample size as possible. Statistics teach us that the larger the sample size, the more reliable/accurate the data. However, if you know how to conduct proper experiments, and not be fooled by chance, you can get the best information from N=1. So, good luck and happy testing.

Don't Trust Yourself

I guess I'll go ahead and clarify, a little bit, right off the bat. More thoroughly, the title of this post probably should have been, “Don't always trust yourself.” And, it's good advice. Sometimes we should, indeed, trust ourselves. But, not always. You see, a lot of people seem to be very proud that they, “Go with their gut.” And I would agree that instincts, or gut feelings, are often accurate. But, they're often wrong, as well. Let me explain.

Many years ago, psychologist Aaron Beck founded a scientific discipline called Cognitive Therapy. One of the many things Beck did was identify a phenomenon that he called a “Cognitive Distortion.” It's not a term we hear every day but, perhaps we should. It's a really important idea. Instead of using the technical, psychological jargon, let's just call it a “Thinking mistake.” The fact of the matter is, we humans make thinking mistakes all the time (humbling though that may be.) In fact, we often make these mistakes in regular patterns. So much so that Dan Ariely felt inclined to write a book titled Predictably Irrational. It's a jolly good read. If you haven't read it, I highly recommend doing so.

Any how. The thinking mistake that has been on my mind lately, is something Beck would call, “Emotional reasoning.” The thought process, behind emotional reasoning, goes something like this, “I feel it, therefore it must be true.” For example, let's say you totally over sleep one day. You wake up and frantically run around the house trying to get the kids ready for school. The thoughts swirling in your head are, “How could you do this? You're such a bad mom. This kids are counting on you and all you can do is selfishly snore the days away. You should be ashamed of yourself!”

This is an example of emotional reasoning. That morning, when you looked at the alarm clock and realized your kids were an hour late for school, you started to beat yourself up. You went so far as to label yourself a bad mother. The reasoning was emotional. It goes something like this, “Oh, I feel so guilty, I must be a bad person.” You see, a lot of people, when they feel the emotion of guilt, automatically assume they must have done something wrong. So, you scurry around the house throwing sharp, mental daggers at yourself. You get so caught up in your self-imposed torture that you can't even hear your children trying to tell you it's Saturday.

Now, that might seem like a silly example, and perhaps it is. But these sorts of scenarios are all too common in modern life. The following is how the book Thoughts & Feelings explains emotional reasoning, “You believe that what you feel must be true-automatically. If you feel stupid or boring, then you must be stupid and boring. If you feel guilty, then you must have done something wrong. The problem with emotional reasoning is that our emotions interact and correlate with our thinking process. Therefore, if you have distorted thoughts and beliefs, your emotions will reflect these distortions.”

In the example of the late-rising mother, the problem was her assumption that it must be a weekday. Which is a totally understandable assumption, seeing as the majority of days (71%) are weekdays. It just so happens that this particular day wasn't one of them. It was a Saturday and there was no school. I used that example because it's innocent enough. However, as it turns out, these sorts of thinking mistakes are quite common. And so, we need to be on-guard against them.

One place where it's most obvious that we shouldn't always trust ourselves is with our diet. This is a realm that often leads to some rather delicious paradoxes. One thing I often say is, “I love dessert. That's why I don't eat it.” Get it? It's a total paradox but it makes sense, doesn't it? It's easy to get carried away eating sugary treats. My love for desserts keeps me on-guard against them. It's not that different from how an alcoholic should not go into a bar. Just because we feel like eating or drinking something, doesn't mean that we should. Again, it's not always a good idea to trust your feelings.

One of Aaron Beck's students was a gentleman named David Burns. Dr. Burns says that procrastination is one of the most common side effects of emotional reasoning. Which makes all the sense in the world. I can tell you this, I don't know that I've ever felt like taking out the garbage. And I've damn near earned a PhD in procrastination. But, it must be done, so we do it. Right?

Another psychologist, David Reynolds, puts it like this, “The mature human being goes about doing what needs to be done regardless of whether that person feels great or terrible. Knowing that you are the kind of person with that kind of self-control brings all the satisfaction and confidence you will ever need. Even on days when the satisfaction and confidence just aren’t there, you can get the job done anyway.”

Maybe that tag, those three words, will sick in your head. Don't trust yourself. (Three more common words would be Do It Now.) I mean, you shouldn't, necessarily, listen to your feelings. Sometimes ya gotta do what ya gotta do. You have to force yourself. Get out of your comfort zone. Like meeting new people. It can be quite uncomfortable. But that's certainly no reason to not do it. (Are double negatives allowed? I always forget.)

I think this whole listening-to-your-emotions thing was parodied beautifully in that Sprint commercial with James Earl Jones and Malcolm McDowell. You know the one? The one where they reenact a text conversation between two guys named Chris and Craig. “I'm kinda tired, but I also kinda wanna go out … Me too!! ….Well, text me if you do … K. But, I probably won't. But I might.”

Too funny!!

Have a good one :)

Embrace the Genius

Let me ask you a question, is life a marathon or a sprint? I'm being serious. What do you think? Is life like a sprint or a marathon? Please take a minute and think about it. You probably don't need much time. I have to imagine that you answered the question, in your mind, immediately after you read it. But, perhaps, you waffled. Maybe you rethought the question and began to come up with good arguments for either answers. Let's talk about the answer. But first, let's take a step back.

Last week I posted an idea from the book Good to Great. Specifically, I talked about something Jim Collins had named "The Stockdale Paradox." And this week, I figured I'd mention something from another of Collins' books, Built to Last. If you have no idea what I'm talking about go here: My Favorite Subject

As the title of this website suggests, I think and study a lot about paradoxes. And it's not because I'm a glutton for punishment. But rather it's because paradoxes are central to life. F. Scott Fitzgerald was essentially speaking about the paradox when he said, “The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function.” Now, I'm not saying I have a first-rate intelligence, but I am working on it. :)

Built to Last is an excellent book and I highly recommend it to you. I'll probably end up posting a report about the entire book. Or, I might just take the concepts one at a time. I haven't decided yet. But I have been fortunate enough to work with Collins' co-author on some of the concepts in Built. One concept, in particular, has been ringing in my head lately.

Built to Last is a book about the successful habits of visionary companies. In their research, what Collins, and his co-author Jerry Porras, discovered was that visionary companies do not oppress themselves with what the authors call the “Tyranny of the OR." The "Tyranny of the OR" is the rational view that cannot easily accept paradox, that cannot live with two seemingly contradictory forces or ideas at the same time. It pushes people to believe that things must be either A OR B, but not both.

“It makes such proclamations as: You can have change OR stability. You can be conservative OR bold. You can have low cost OR high quality. You can have creative autonomy OR consistency and control. You can invest for the future OR do well in the short-term. You can create wealth for your shareholders OR do good for the world.” That last one is actually pretty popular these days. It's the idea behind, “Doing well by doing good.” A great example would be Yvon Chouinard and what he's doing with Patagonia.

Collins and Porras found that instead of being oppressed by the “Tyranny of the OR,” highly visionary companies liberate themselves with the “Genius of the AND.” This is the ability to embrace both extremes of a number of dimensions at the same time. “Instead of choosing between A OR B, they figure out a way to have both A AND B.”

This isn't about greed but rather it's about wisdom. Automobile manufacturers used to believe that you could either produce a low-cost car OR a high-quality car. And that's exactly what they did. But then one company wondered if they could do both. Before long, Toyota had taken over and was in first place. Today it's well accepted that we can have low-cost AND high-quality. In fact, in many ways, high-quality IS low-cost. What we find is that higher quality goods actually cost less. It's like my pappy used to say, “Anything worth doing is worth doing right the first time.”

Let's take it off business for a minute. Let me ask you this, would you consider yourself Dr. Jekyll or Mr. Hyde? By making the question personal, I hope to have illustrated the point. The answer, that I imagine you gave, was something like, “It depends.” And, yes, it does depend. You're probably more Jekyll than Hyde but we all have the ability to be both. We're good AND we're bad. If you doubt me, or if you're in denial, I encourage you to read the book The Lucifer Effect by Phil Zimbardo. The book is about the famous Stanford prison experiment and it clearly illustrates how each of us is part Jekyll and part Hyde. My friend, don't fight it. It is what it is. Embrace the genius of AND.

Let's finish back where we started. What was the question I first asked you? Is life a marathon or a sprint? What is your answer now? Surely, your answer now is that life is both a sprint AND a marathon, right? I believe that's true. I believe it's wise to view life as a marathon of sprints. “Hurry up and wait,” right?

I do think the marathon element is the more fundamental of the two. But both are important. Grit and perseverance are critically important in life. However, procrastination is also an ever present enemy. This is where the sprint comes into play. Sometimes we need to get off our butts and sprint. It's how great things get done. Of course, we can't sustain a sprint indefinitely. So, sometimes you need to sprint and sometimes it's okay to walk. New York psychologist, Nando Pelusi, likes to use the word “Kurtosis” for this process. Dr. Pelusi advocates a strategy of brief intervals of passionate, intense activity dispersed among periods of conscious relaxation. Basically, a marathon of sprints.

P.S. I highly encourage you to read the book Built to Last. It's quite impressive and it launched Collins into an extremely successful career. You've probably heard Jim's name before. But, the name you definitely hear the most, on this blog, is Peter Drucker. Here is what Collins had to say about Peter, “My first encounter with Drucker's impact came at Stanford in the early 1990's, when Jerry Porras and I researched the great corporations of the twentieth century. The more we dug into the formative stages and inflection points of companies like General Electric, Johnson & Johnson, Procter & Gamble, Hewlett-Packard, Merck and Motorola, the more we saw Drucker's intellectual fingerprints. David Packard's notes and speeches from the foundation years at HP so mirrored Drucker's writings that I conjured an image of Packard giving management sermons with a classic Drucker text in hand. When we finished our research, Jerry and I struggled to name our book, rejecting more than 100 titles. Finally in frustration I blurted, "Why don't we just name it Drucker Was Right, and we're done!" (We later named the book Built to Last.)” I'm just sayin'.