by aC

Created on: November 02, 2008

Oh, how different my life would be if I hadn't read Rich Dad Poor Dad at the "tender" age of 25! I wouldn't even be investing in stocks now. It really opened my mind to the concept of money and how it should be working harder for you and not the other way round. Five years later, I feel that the concepts raised in the book are still applicable in today's world, especially in the wake of the financial crisis. Here are a few take-aways from the book that I wished I had a Rich Dad to teach me when I was 9.

(1) The Rich Don't Work For Money

People need a sense of security and that is why most of them choose to work for an employer to obtain a perceived steady flow of income. They do not want to take a risk in becoming an entrepreneur for fear of losing everything in the venture. One thing I have learnt from this is that it is an even bigger risk to be an employee than an employer. Why is that so? Because, through no fault of your own, when the company is forced into bankruptcy, you will be retrenched and have the rug pulled from underneath you (Think Lehman Brothers). As a business owner, you have control over what is happening in your company and you have the power to take care of yourself first (Think inflated CEO compensation, even in such turbulent times.)

(2) Financial Literacy

Here Rich Dad introduces a watered-down version of the Income Statement and The Balance Sheet. He defines Assets as items that increases Income and Liabilities as items that increases Expenses. How the rich get richer is by increasing the no. of assets they own (e.g. stocks, bonds, property lease) which in turn contributes to an increase in their overall income and the cycle continues. How the poor gets poorer is that they tend to acquire liabilities (bigger homes, luxury items) from their steady salary flow which in turn increases their expenses (and thus reduces their overall income) and the cycle continues. One lesson I took away from this is we should increase ownership of sources that generate passive income - Income that increase even in our sleep or without much effort on our part. One example off my head is writing Helium articles.

(3) Mind Your Own Business

With the above lesson in mind, Rich Dad now advises us to start acquiring assets that generates income instead of trying to secure a fixed income by working for somebody else. Sure, you can always job-hop to get higher pay or if you just stay with the company long enough, you will get a job promotion with salary increment. However, such income increase are infrequent and slow. Through active acquisition of assets, you can reinforce a pattern which increases income, leading to acquisition of more assets and leads to further increase in income, which... Well, you get the picture.

In conclusion, I would like to mention that Rich Dad Poor Dad not only opened my eyes to the concept of money but it introduced me to 2 other great books (via its Recommendations section) - "Think & Grow Rich" as well as "The Warren Buffet Way" which laid the foundations of my investment philosophy.

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