Your habits and attitude towards money are important. To illustrate this point further, a comparison between Rich Dad and Poor Dad are as follows:
Principle 1: The rich do not solely work for money
Poor Dad spends every hour of every working day for his money. He ‘clocks in and clocks out’ at work.
Rich Dad works and saves to eventually buy assets. Once assets are acquired, Rich Dad does not trade his time for money like Poor Dad. Rich Dad acquires assets that generate money for him.
Principle 2: Financial literacy
It’s not about how much money you make, but how much money you keep.
Rich Dad acquires assets.
Poor Dad acquires liabilities which he thinks are assets.
You must understand the difference between a liability and an asset:
Assets: puts money in your pocket.
Liability: takes money out of your pocket.
Principle 3: Mind your own business
Rich Dad focuses on his assets. Note the plural: Rich Dad has multiple streams of income and does not place all of his eggs in one basket.
Poor Dad focuses on his income statement. Note the singularity. Poor Dad only has one source of income.
This illustrates the importance of building and maintaining a strong collective group of assets; an asset is anything that produces positive cash flow every month!
Principle 4: The power of corporations
Rich Dad takes advantage of legal tax loopholes. For instance, if you own a business and make a decent amount of money, you can set up a corporation to pay a lower rate of tax (legally).
Poor Dad pays the highest rate of income tax in contrast to Rich Dad.
This demonstrates the importance of developing your financial IQ. This is comprised of 4 domains:
- Accounting (understanding numbers).
- Investing (using your money to make more money).
- Understanding markets (supply and demand cycles).
- The law (legal tax laws/loopholes to keep more of your money).
Principle 5: The rich seize opportunities to invest money
Rich Dad is bold and a calculated risk taker.
Poor Dad is afraid of risk and is unlikely to embrace new opportunities.
Principle 6: Work to learn, don’t work for money
Rich Dad works to learn a little about many subjects. He is often an all-rounder and does not essentially work for job security.
Poor Dad focuses only on one job. He is often an expert/specialist in one discipline and works for job security. Arguably, there is no such thing as job security in today’s economic climate.
Principle 7: Overcoming obstacles
Rich Dad manages his fears/obstacles well. He is fearless, possesses great self-belief and is not content with the status quo.
Poor Dad lacks the ability to manage his fears/obstacles well. He is fearful of losing… that he loses in the end anyway. He also often exhibits self-doubt in his abilities and is content with the status quo; which ultimately makes him lazy and inclined to waste time.
Sources of Information:
- Kiyosaki, R.T. (2014). Rich Dad, Poor Dad: What the Rich Teach Their Kids about Money – That the Poor and Middle Class Do Not!