Rich Dad, Poor Dad - 6 Rules Decoded

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  • 20 Jan 2023
Rich Dad, Poor Dad - 6 Rules Decoded

“The middle class work for money; the rich have the money work for them” -Robert Kiyosaki

Throughout history, creating wealth has served as the ultimate goal for any child who came from a humble family. Everyone has the desire to be wealthy, but only a select few actually understand how the money operates. In addition to being a highly disciplined process, accumulating money calls for a mental transformation as well as an attitude that is oriented toward the creation of assets. Robert Koyosaki's well acclaimed 1997 bestseller "Rich Dad, Poor Dad '' addresses this very issue. People are guided through the process of creating money in Robert Kiyosaki's book, which challenges readers to reevaluate their views on the topic. Despite the fact that Robert Kiyosaki has filed for bankruptcy, the appeal of his book - which many people of all ages believe to be the bible in developing a money mindset - has not decreased. This article will walk you through the book's six rules.

Six rules

Rule 1: The poor work for money. The rich put their money to work.

Do you 'live to work, or work to live?' This is one of the basic concepts ‘Rich Dad, Poor Dad’ sheds light on. People with limited financial resources follow the conventional route of getting a good education that qualifies them for safe and relevant jobs that'll help them earn more money. Thus, they avoid taking risks out of fear. On the other hand, rich people buy or invest in income-generating assets such as stocks, real estate, mutual funds, etc. They make money via passive income and don't work their entire life to earn it.

Rule 2: Know the difference between an asset and a liability.

Simply put, an asset is something that puts money in your wallet. In contrast, a liability is something that takes money out of your wallet. Keeping this in mind, now you'll understand why rich people acquire assets (securities and investments) and poor people add liabilities (commitment and obligations). This is crucial in determining an individual's future wealth development. This is one of the best ways of investment.

Rule 3: How much you save matters more than what you make.

The most important practice that separates the rich - predominantly the self-made - from others is the consistent habit of saving enough. One of the biggest mistakes people commit is prioritising spending over saving. Savings get the leftovers. For example, say your in-hand salary is Rs. 50,000. After allocating money for necessary expenses and a few ‘nice-to-have’ luxuries, you have Rs. 2,500 left. That means you’re only able to save 5% of your total income. In many cases, even that gets spent due to unavoidable expenses. However, the circumstance is different among those who aspire to become rich. The general rule of financial planning says that you should ideally save and invest 10-15% of your net income. However, the ones with more dedication end up saving way more, i.e.30%, 40%, or even 50% at times! Now, let’s go back to the same example. The only difference is the person successfully saves 50% of his income (Rs. 25,000). Assuming an average annual return of 12%, they will accumulate a whopping Rs. 2.5 Cr in just 20 years! Remember, we aren’t even considering their income and savings that’ll increase over the years.

Rule 4: Reinvest your profits.

Robert Kiyosaki insists on reinvesting the profits created by your assets, in other assets. It’s one of the best ways of investment. Instead of thinking about earning more, focus on looking for more valuable assets. Say you rent out an apartment that you own. What do you do with the monthly rent that you receive? Is it just lying in your savings account? If yes, invest the same in stocks, mutual funds, or other promising avenues.

Rule 5: Don't rely exclusively on financial advisors

Kiyosaki says that every individual has valuable insights into their personal finances that only they can develop. Depending on financial advisors is undoubtedly beneficial, but not at the expense of losing control over your own money. "Learn how to invest because nobody will do it better than you," says Kiyosaki.

Rule 6: This is your greatest asset!

Financial education! Yes, financial literacy is more important than money itself. If you are always keen to learn more, nothing can stop you from creating more wealth. Most importantly, analyse how the science of making money and investing works. "Intelligence solves problems and produces money, and money without financial intelligence is quickly lost," said Robert Kiyosaki.

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