Johannes' blog

Key Takeaways from "Rich Dad Poor Dad"

This post is about the book, "Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!" by Robert T. Kiyosaki.

To me, the book was a glimpse into alternative investment careers outside of tech, primarily dealing with real estate. Here are some key concepts that I captured and learned from the book.

In general, the book advises that instead of trying to grow your income, you should focus on growing your income-generating assets. Rather than channeling your energy into your job and depending on a career with an employer, you should aim to build up the assets you own, allowing your capital to start working for you. To achieve this, you should essentially:

Focus on compounding gains from assets. By reinvesting your cash flow into buying more assets, you effectively set yourself up to become wealthy.

Create a business that helps you minimize the impact of taxes on your personal finances. Instead of paying higher income taxes the more money you earn, consider reinvesting your income into assets that help you build up your long-term cash flow.

Consider the advantage of a company structure. Creating a separate entity protects you from personal liabilities and gives you more freedom in how you can manage your taxes.

Don't solely focus on the money you earn, but strive to grow the company you own to generate enough cash flow that it could potentially cover all your personal expenses (definition of being wealthy).

1. You Become What You Study

If you want to change your life and develop a habit, you need to start researching and learning about the topic. For instance, to start eating healthier, you can ignite an impulse by reading cooking books. If you want to work less, you can begin by reading about investments. Focus your attention on the things you care about. Conversely, if you don't want to become something, you will have a hard time focusing on the content. To motivate yourself to change, you need to learn about how to effect that change.

"Most of us have heard the saying, “You are what you eat.” I have a different slant. I say, “You become what you study.” In other words, be careful what you learn, because your mind is so powerful that you become what you put in your head. For example, if you study cooking, you then tend to cook. If you don’t want to be a cook anymore, then you need to study something else."

2. About Investing

Hire People Who Are Smarter Than You

If you feel like you're smarter than your tax adviser, then something is wrong.

“The real skill is to manage and reward the people who are smarter than you in some technical area.”

Brokers Help to Save Time

A good broker wants you to earn money because they earn money too. Brokers' interests are aligned with yours because they work on commission. They are incentivized to sell your properties for a high price. Essentially, a broker is outsourcing the marketing and sales for your property.

Plan When You Get Your Money Back

Return on Investment (ROI) depends on when your investment will break even.

“The sophisticated investor’s first question is: “How fast do I get my money back?” They also want to know what they get for free, also called a “piece of the action.”

Derisk by Pulling Your Initial Investment

Avoid losing money by pulling your initial investment to only play with your gains.

"I will move my money in for a week to a month while the stock moves up. Then I pull my initial dollar amount out, and stop worrying about the fluctuations of the market, because my initial money is back and ready to work on another asset. So my money goes in, and then it comes out, and I own an asset that was technically free."

Create Great Opportunities

The only way to get great deals is to create them. Always try your luck. It's easier to walk away and say no than investing too early.

“I said to write offers on all six, offering half of what the owners asked for. She and the agent nearly had heart attacks.”

Investing is Like Dating

Increase your surface area to find investments. It's a probabilistic game, and you should view it like funnel optimization.

“You must go to the market and talk to a lot of people, make a lot of offers, counteroffers, negotiate, reject, and accept.”

Buying Properties is Like a Leveraged Investment

Real estate investments are leveraged because you can use the bank's money to increase your investment.

"Ability to Purchase with Leverage Rental properties are great because you can borrow the bank’s or someone else’s money to increase the potential return.”