Why do some people seem to effortlessly become richer as they get older, whilst others, no matter how much they earn, never seem to have enough money? This is a fundamental question that Kiyosaki attempts to answer in Rich Dad Poor Dad, by outlining the six rules of money for people to follow, if they want to accumulate wealth. First written in 1997, with now over 40 million copies sold, his thesis is that your ability to accumulate wealth has nothing to do with how much you earn and everything to do with how you think.
The book is famous for the first few takeaways as these are the chapters that are conceptually the easiest to understand. For example, how to determine the difference between an asset and a liability in your personal sphere: Discount standard accounting rules for a moment and with that embrace the simplicity of Kiyosaki’s first rule. If an asset doesn’t generate income, it is not an asset, but a liability. On that basis, the home we live in is not actually an asset. This is obviously contrary to how most people think about their finances, but that is the reason why this rule is so interesting, as Kiyosaki argues that the opportunity cost of say buying the dream home is if it then means you have limited money for other opportunities or investments. Therefore if you want to buy your own home, make sure you are also investing in cash-generating assets simultaneously, whereas they grow in value, they can support you moving to a larger place. With this rule, Kiyosaki openly admits he gets challenged about this rule constantly.
Later in the book, he discusses the rule of learning one more skill. Put another way, he argues the objective is to attain financial intelligence, where to do so, one must learn accounting, investing, marketing and law. Learning these four skills and combining them is the secret to explosive income growth. He argues that we should always be looking to learn and develop, where the real advantage of working as an employee is not the salary, but the benefit we get from learning whilst being paid. He describes his own career, where before forming his own business he first worked in shipping, travelling across Asia, then went into the Marine Corps, where he learned to lead troops, then took a job in Sales at xerox, as it had an industry-leading sales training program. Before he was 30 he formed his first company, which made nylon and Velcro wallets in Asia and shipped them to NYC.
I have picked on this segment of the book as it is the one that is the most thought-provoking. The old maxim of being the jack of all trades and master of none is often stated as a put-down, none the less, the successful entrepreneur especially at the beginning, will need to have abilities in being able to lead, manage and organise people, win and keep clients, build products and solutions people want, whilst having a firm hand on finance. His argument, therefore, is that the fast track to being an entrepreneur is to work as an employee to learn the skill you want, then once you have mastered it, quit.
On the one hand, this segment makes sense but seems a stretch in today’s hyper segmented workforce. None the less, the fastest way to build business relationships is through working in a company and networking with colleagues, clients and suppliers alike and having a black book with a kick is a critical part of the first phase of starting up a business. At the very least, one could derive from this, don’t set up a business in a sector you haven’t worked in, as the learning curve will be at your own expense.