Sunday, 4 May 2014

Rich Dad Poor Dad

My Review: 4/5

Once I wrote an article about what I will teach my future children. One of the points was “I will tell them that managing money is more important than earning”. This book motivates towards exactly same philosophy- ‘It’s not how much money you make. It’s how much money you keep’.

Written by Robert T. Kiyosaki, this book is labelled as #1 personal finance book of all time. I totally agree with that. I actually found this book quite inspiring in terms of investing. I remember when I first started thinking about stepping into stock market and investment; I was really scared, just like Mr Kiyosaki has mentioned in the book: people’s life are forever controlled by two emotions: fear and greed. However, the truth is, as an author added 'often in the real world, it’s not the smart that get ahead, but the bold. People should learn to take risks, be bold, and let their genius convert that fear into power and brilliance'.

Rich people in the world become rich by being financially intelligent. The secret of being financially intelligent is ‘investment’. The book encourages you to invest in real estate but I would say, invest in your education first and then, real estate is obviously a powerful investment tool. The secret of investing in real estate is making profit as much as possible while buying. Most of the middle class people invest in mutual funds and get away with that because that has lower risk. Rich people in fact invest in higher risk because high risk means high return. Remember, its not a gamble. Only invest the sum that you can afford to lose. Here is the tip: Invest in the new company and sell it after 1 or 2 years because most of the start up don’t last more than 5 years. Don't be put off with failure or loss. It is there to make you stronger and smarter.

Another lesson from the book is to make sure you pay yourself first. What that means is, start your own business! When you have a job, you get your salary after the tax has been deducted but the good thing about doing business is, you pay all the business expenses first and the tax is deducted only from the profit. So, you might have seen rich people travelling in business class, staying in expensive hotel and travelling to different countries. That is because they include those expenses in business expenses that means they don’t pay tax in that. Smart huh? That’s called financially intelligent.

The interesting thing about the book is, it differentiates the meaning of liabilities and assets, which most people confuse (including me but not anymore). I will give you an example of both here. If you buy a house and live there and pay mortgage, that house of yours is not asset but liability because you are paying interest on it. However, if you rent that house, and that rent covers the mortgage and every expenses, and at the end of the month, you have at least small amount of that rent going into your pocket, that’s your assets.

Although I agree with most of the things an author has mentioned in the book, I actually found his book criticising the academic schools. It might not be the case but quite often, it came to me that an author in the name of his ‘Rich Dad’ empathised on the fact that the schools don't teach about finance and they are designed to produce good employees instead of employers. For me, I think you can only become good employer if you are a good employee. Also, education is important. The skills you get from the academic life plays vital role in making you understand ‘financial intelligence’.

So, the moral of the book is: Invest….... Invest ……. And invest !!