Rich vs. poor mindset
What’s the difference between the rich vs. poor mindset?
It’s all about how you THINK and USE money.
Look at Robert Kiyosaki who Celebrity Net Worth estimates as having $80 million.
He’s the author of Rich Dad Poor Dad, one of the best-selling personal finance books of all time.
In his book, he shares the difference between the rich, middle-class and poor mentalities.
Here’s a snapshot of what the book’s about:
- In Rich Dad Poor Dad, Kiyosaki compares his two dads: his best friend Mike’s father (rich dad) and his biological father (poor dad).
- His rich dad, who never finished grade 8, is a wealthy entrepreneur and one of the richest men in Hawaii.
- His poor dad, who is a Stanford PhD, is an employee of the government and has a high income and good benefits, but still struggles to pay the bills.
- This book discusses about how the difference between these two dads is in their financial literacy, mindset and habits and how they manage money.
You can listen to this book for free through Audible’s 30 day FREE trial, which gets you 2 FREE books! Audible,an Amazon company, has the world’s largest selection of digital audiobooks. Even if you cancel within the free trial period, the books are yours to keep!
In the meantime, here are the 7 differences between the rich vs. poor mindset in Rich Dad Poor Dad.
What is a rich mindset?
1. The rich don’t work for money.
While the poor and middle class work for money, the rich make money work for them.
Basically, the poor and middle class work a day job to earn a paycheck whereas the rich are entrepreneurial and capitalize on opportunities.
To seize these opportunities and have money money work for you, you need to overcome 2 emotions: fear and greed.
The fear is of being without money and worrying about not being able to pay the bills makes you continue the same day job even if it’s not meaningful to you.
Greed is spending money on all of the luxurious things money can buy. The happiness that comes from these things is often short-term. Soon you want more money to buy more things.
These 2 emotions perpetuate this pattern of working to get more money and then increasing your spending, trapping yourself in the rat race.
2. The rich build assets and reduce liabilities.
Instead of relying on your job for money, you should focus on building your personal wealth by increasing your assets.
Rich people acquire assets while the poor and middle class acquire liabilities.
An asset puts money in your pocket. A liability takes money out of your pocket.
Examples of assets are stocks, bonds, income-producing real estate, royalties from intellectual property, and businesses that generate income.
An example of a liability is your home. While often perceived as an asset, your home costs you money as you have to pay property taxes, utilities and other maintenance costs. If you rent out your home and generate cash flow from it, your home would be considered an asset.
The author clarifies that he’s not saying don’t buy a house to live in for yourself. He’s saying buy assets that will generate cash flow first to pay for that house you want to live in.
Kiyosaki discusses his favorite two assets – real estate and small company stocks that are about to go public on a stock exchange. These are his favorites because he loves buildings and land and he’s an entrepreneur at heart.
3. The rich make money work for them.
It’s not how much money you make, it’s about how much money you keep. The rich dad is a frugal man who doesn’t have a lot of material possessions.
While the traditional school system educates you on how to get a job, it doesn’t show you how to save money and make it work for you.
The cash-flow pattern of a poor or middle class person is to spend all of their income on expenses and liabilities like credit card payments.
The cash-flow pattern of a rich person is to spend their money on not just expenses and liabilities, but also in building assets.
The author discusses how most believe that more money will solve their problems. More money will actually highlight the problem.
This is why people who often get lottery winnings soon return to the same financial difficulties they were in before that windfall of cash.
With this large increase in income, there will be an increase in expenses as they’ll want to have more luxuries like a bigger and better house. Now their liabilities column is increasing and they’re caught in the rat race.
The real loss is the opportunity cost. As their money is tied up, they can’t take advantage of opportunities to buy assets that are temporarily discounted.
They’ll also lose the time the assets would have grown in value.
4. The rich minimize taxes and use the power of corporations.
The rich have or use advisers who have financial IQ – the expertise in accounting, investing, understanding markets and the law.
They understand how to maneuver the system to protect their assets and minimize their taxes.
The number one expense for most people is taxes. The more income you make as an employee, the greater tax you pay. If you are the employer, you have more tax advantages and protections.
For example, they understand that a corporation can do things that an employee can’t.
- earns income,
- gets taxed, and
- uses the remaining amount for expenses.
In contrast, a corporation
- earns income
- spend, and then
- gets taxed on the remaining income.
They also use their corporation to protect their personal assets against lawsuits.
5. The rich create opportunities and take risks.
While the poor and middle class wait for luck and opportunity, the rich recognize and create opportunities and take big risks.
The author discusses how there are 2 types of investors. There is one who buys a packaged investment like a mutual fund through a financial investor. There is another who puts together opportunities and creates a new investment.
It is this second type of investor that locates opportunities that everyone else overlooks. This investor knows how to raise capital that doesn’t require a bank, and work with or hire advisers who are smarter than himself/herself.
6. The rich learn management and communication skills.
The skills of management and communication are necessary to learn to achieve financial success.
Communication skills – writing, speaking, negotiating, selling and marketing – are particularly important.
You can learn these skills through attending courses or working a second or other job that allows you to build on these skill sets.
7. The rich align their habits and emotions.
In order to build your assets and use your financial literacy, you need to manage your mental state:
- Overcome your fear of losing money – “Failure inspires winners. Failure defeats losers.”
- Don’t be like most and let your doubts and thoughts of doom and gloom paralyze you into inaction
- Don’t think you’re too busy or don’t have enough money to build your wealth – If you think you can’t afford it, you should ask yourself “How can I afford it?”
- Use exercises like paying yourself first as the pressure to pay your creditors will be so great that it will motivate you to make more money. Of course pay your bills as well, but use this exercise as a way to stimulate your financial thinking.
- Overcome your arrogance and be open-minded to learning more
What I enjoyed about Rich Dad Poor Dad
There is a lot to be learned from the lessons in the book. New perspectives are always useful to have in your toolbox.
The book made me think differently about business and investing in real estate. Shortly after reading it, I actually took the steps to refinance my house to get access to the appreciated value so that I could use it on a rental property. Now we have an additional income stream!
Related: Here’s how I became a PASSIVE landlord on a rental property through Epic Alliance.
Personally, I wasn’t taught any of these lessons about financial literacy in school nor by my parents. It’s no one’s fault, but myself. I should have read more.
Personal finance and knowing how to manage your money are important life skills.
I will be encouraging my daughter to read this book as I don’t want her to learn this knowledge later in life like I did.
I also like how the beginning of the book is told from the point of view of Kiyosaki from when he’s a young boy. It starts with how him and his best friend Mike wanted to learn how to become rich. They are mentored by their rich dad and go through a series of tasks and attain key learnings. It’s a heart-warming read and relatable!
What I questioned about Rich Dad Poor Dad
When I started reading reviews about the book, I came across articles that discuss how the book might be fictional. There were articles stating that Kiyosaki’s rich dad might not be real as Kiyosaki wouldn’t disclose his identity.
This was a shock. It calls into question all of the advice that Kiyosaki shares in the book.
Then I started thinking about how a lot of great books are a combination of real events and the author’s imagination. Wealthy Barber is a good personal finance book that is structured like non-fiction, but is actually fictional.
Then I read an article stating that Richard Wassman Kimi, the Hawaiian hotelier, was the “Rich Dad”.
The reason why his identity was initially concealed was due to a confidentiality agreement between Kiyosaki and Kimi. The Kimi family later came to an arrangement with Kiyosaki to disclose Richard Wassman Kimi’s identity as the “Rich Dad”. So I guess there was a rich dad after all.
The second thing I questioned about the book were some of his examples of how he’s earned money.
They don’t have concrete steps so it’s difficult to understand how to replicate his actions. I’m the kind of person that needs this type of step 1, step 2, step 3 structure so this is a difficult part for me to relate to.
Final thoughts on Rich Dad Poor Dad
I recommend Rich Dad, Poor Dad. The story of Robert and Mike as boys and the trials they go through learning from the rich dad are fun and interesting. The author mentions a lot of stories and examples, which help to illustrate the learnings.
The most valuable thing I’ve attained is a different perspective about how to attain money. How to create a wealthy mindset.
If you’re interested in Kiyosaki’s ideas, check out his other books like Rich Dad’s Cashflow Quadrant. He also has Rich Dad Adviser books like The Advanced Guide to Real Estate Investing, the courses, and the Cashflow board game.
In case you missed it above, you can listen to this book for free through Audible’s 30 day FREE trial, which gets you 2 FREE books! Audible,an Amazon company, has the world’s largest selection of digital audiobooks. Even if you cancel within the free trial period, the books are yours to keep!
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