10 lessons from Rich Dad Poor Dad

Table of content

• Assets and Liabilities
• Passive Income  
• Living paycheck to paycheck
• Spend less than you earn
• Financial Education
• Mindset around money and wealth
• Work to learn skills
• Take calculated risks
• Pay yourself first
• How can I afford it?

              Here is our take on the book. 10 things you can learn from it that will help you grow and succeed financially: –

1. Assets and Liabilities

“Have assets avoid liabilities”

Assets are things that put money into your pocket, while liabilities are things that take money out of your pocket. Assets are financial resources, while liabilities are financial obligations.

So, it is only logical for us to invest more money in assets and less in liabilities. Neglecting it can affect your prosperity drastically.

2. Passive income

Passive income is a type of income that requires no labour or minimal labour to earn and maintain. money in less time. This book emphasises having multiple sources of income so that you can earn more. Doing that actively is not possible for a single person. If you have work that requires your attention every second, you will never be able to build wealth or have time to focus on other opportunities.

A good example of passive income is Royalties.

              Royalties have always been a favourite type of passive income. A person builds or innovates a product once and generates income afterwards for a long time.

However, A daily wage labourer goes to work and gets money at the end of the day. This type of income is active income. He won’t be making any money if he doesn’t go to work.

(link coursera post on 11 passive income ideas)

3. Living paycheck to paycheck

Living paycheck to paycheck refers to individuals or households that regularly spend nearly all of their income, leaving little to nothing left over for savings.

• I have seen people who are happy that the weekend is coming. They wait eagerly for the weekend, while they are miserable for the rest of the week. They go out to have a party, get a hangover and sleep late at night. The beginning of the week is their nightmare. At the end of every month, they wait for their salary to be credited into the account because they are low on cash. The weekend is the only reward for them.
• They are trapped in a constant cycle of fear. They fear that they might lose their job any day. They engage in office politics. Always trying to make the boss happy rather than working on themselves. Most of them earn just enough salary to survive. They are stuck in the same job because they don’t know anything else to do or are fearful of change. (Aren’t we all?)
• As the economy and technology change, companies always look for ways to downsize and restructure the system. There is always a risk for those who are not aware and up-to-date with the changing world.People living paycheck to paycheck have little money for saving, so nothing is left to invest. Not having enough money to save or invest leaves an individual with financial vulnerability, making them vulnerable if anything out of the ordinary happens to them.
• These people don’t have emergency funds. Thinking about the uncertainty of the future keeps them awake at night. Its something Poor Dad does.

This leads us to our next point.

4. Spend less than you earn

This is an age-old belief system that has worked for many years and still works the same. Your spending habit determines the amount of wealth you will be able to accumulate.

• Live below your means – Living below your means can save you money, and thanks to it, you can live a carefree life. You can be financially independent. Retire early. You can also focus on your passion rather than going to a job daily. Poor money management always leads to a miserable life.
  • Many times, people claiming to live paycheck to paycheck have bad spending habits. They spend their money on things they want to have, not on things they need to have.
  • Often, people spend more to fit in society. They lack self-confidence, and to fill this gap, they buy materialistic things. They spend money as a showcase of their worth.
• We should keep an eye on our cash flow. Building wealth is not always about what you make, it’s what you keep.

If a person earns a million dollars a month and spends a million, will he ever going to be rich?

5. Financial education

“Money is one form of power. But what is more powerful is financial education.”

Having financial education is important. Lack of it decreases the chances of making more money from the money you already have.

1. For example, some banks come with exciting offers on interest rates at the end of the financial year; if you don’t know about them, you will invest the amount at a low interest rate.
   1. Financial literacy has nothing to do with your educational background. Many people can be overachievers in their field of endeavour and still have no idea how financial instruments work.
   1. Poor money management – You have heard the story of People who win the lottery but go bankrupt after a few years. The money they have won certainly is a lot more than they would have made in their whole life, but still, they went bankrupt. It’s all because of their spending habits and lack of financial education. They do not keep an eye on money going away, because in their mind, they have a lot. They do not know how to save and invest properly. They don’t have any financial planning because they have never done it, and don’t bother doing it now.
   1. For many years, humans have believed that wealth can be built by working hard. But as the narrative around money has changed, financial IQ also contributes to the building of wealth. It paves the path towards richness. Now, making money is not only about working hard. It’s also about knowing accounting, learning how to invest, understanding the market, and understanding the law of the country you are investing in. For building wealth, a person should know how Money and taxes work.

In short, making money is a game, so learn the rules

6. Mindset around money and wealth

• Money is not real. It has no intrinsic value. It is only a medium we use for exchange. The real thing we have is our skills, the products we create, and the service we provide. Even when we had the barter system, we were able to exchange value. However, in the current economy, money is an acceptable medium of exchange.
  • Money is freedom – Having money gives you freedom to a certain extent. You can use it to fulfil your purposes and dreams. When you have money, you can exchange it for time. You don’t have to do everything yourself. You don’t have to worry about what you would eat if you don’t go to work for a month.
  • Money is a tool that offers you value – You want to travel the world, use money to buy the ticket for the trip. Someone is sick in your family, use money for their hospital bills and medicines.

Having money in your account or in some other form instils the idea in your heart that if something goes wrong, you will have a cushion to minimise the damage.

It offers you the means to fulfil the desires that arise later.

• Don’t be a hater of money –

“Money is the root of all evil”

A phrase highly appreciated in communities around the world in one or other form. Money corrupts people, it leads to family feuds. It gives birth to Greed and whatnot.

If you believe all that and hate money for it. Why would you ever want to have something you hate?

7. Work to learn skills

When you are young, you have less to lose. Young minds are eager to earn money. They do menial jobs in exchange for money.  That’s not always a bad thing. But when you are young, you should focus on jobs that teach you certain skills, even when it doesn’t pay much. Learning skills can generate exponential income for you later.

8. Take calculated risks

Many of us don’t invest money due to the fear of losing it.  We forget that avoiding failure is avoiding success, and not taking risks is the biggest risk.

• Though saving is also a strategy to accumulate money, but not going to build wealth, because the purchasing power of money depreciates over time. So, sooner or later, you will need to invest the money you have to make more money.
  • Keep your emotions in check while looking at any business and investment opportunities. Often, people invest due to the Fear of Missing Out (FOMO).

When people lose money, they get overwhelmed by emotions and lose money trying to win back the money they have lost earlier. Always look at the investment opportunity with your brain and keep your heart at bay.

9. Pay yourself first

One thing we forget among everything is ourselves. We forget to take care of ourselves. People new to businesses or job re-invest or spend everything they have. They never put aside money that’s labelled “for me”.

When you start making money, you need to pay yourself first because you are the one who earned it. No one deserves it more than you do. Use it for self-development and to make your life better.

10. How can I afford it?

Now that we have talked enough about how you can build wealth.

Let’s ask ourselves the question, “How can I afford it?” We all want things. Sometimes we need things. But don’t have the money to have it. So, we have to figure out what we can offer in exchange for being able to afford what we need or want. It makes it easier for us to keep our cash flow in check.

When I was a teenager, I wanted comic books. They cost more than my pocket money. So, I started giving tuition for an hour to generate extra income for my comic books. That’s how I came to understand how much effort it takes to buy a comic book. That was not even a necessity. So, every time you want something and can’t afford it, figure out a way to generate more income so that you can afford it. You will find a way.

Conclusion: The book ‘Rich Dad Poor Dad’ talks about the simple things of everyday life. Things that are hidden in front of our eyes. Simple habits that can be built with little effort daily. Try more of what rich dad will do and less of what poor dad will do.