In August of 2011 when I started searching for books to introduce me to the game of investing, stocks, and finances, Rich Dad Poor Dad stood out from the pack as the go-to book for an introduction. Almost everywhere I looked this book was at the top of the list, and for good reason too.
To be sure, I found that there wasn’t much “substance” in Rich Dad Poor Dad. It’s not a book that goes into detail describing how to value companies, select stocks, manage risk, and so on.
Instead, Rich Dad Poor Dad serves as a fantastic starting point to personal finances and the investment world by laying out the big picture to readers. Robert Kiyosaki shows the fundamental differences in personal finances between what leads a person to poverty, the middle class, or the upper class.
The Rich, Kiyosaki explains, live below their means and invest their spare money into assets that produce cash flow, and appreciate in value over time. This process usually starts out small, like a small snowball rolling down a snowy hill. However, if you keep reinvesting the appreciation and cash flow that your asset column produces back into buying more assets, a compounding effect emerges. An asset column is much like the snowball rolling down a snowy hill: the larger and larger it becomes, the faster and faster it grows.
Kiyosaki contrasts this method of personal finances with that often employed by people in the middle class, who are stuck in the never-ending cycle of the rat race. The rat race happens when people consistently increase their spending as they make more money, they never have money left over to buy income-producing assets because they are busy keeping up the Joneses: buying fancy cars, larger houses, boats, and other non-income producing, indeed mainly depreciating assets.
The result of the rich way of life is that over time the person builds an asset column that can cover their living expenses: thus freeing them from the clutches of the rat race and giving them the ability to no longer rely on working a 9-5 job to cover their expenses. This person can then start increasing their spending as their asset column grows to cover it.
It’s absolutely key that you create an asset column that can sustain an increase in spending first because once your asset column can cover your expenses you don’t need to work any harder to spend more money – your money works hard for you.
To paraphrase Kiyosaki:
“The rich buy assets, the poor and middle class buy liabilities”
Kiyosaki goes on to describe the two basic emotions involved in investing: fear and greed, and the attitude it takes to become a successful investor, entrepreneur, and more.
I highly recommend this book to anybody starting out.