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Rich Dad, Poor Dad. What the rich teach their kids to be successful.


Rich Dad Poor Dad by Robert Kiyosaki is a personal finance book that intends to teach the reader on how to manage your finances and to become rich. 
He tells the story of him being raised by two fathers.  His biological father, who was a government worker, a well-educated individual, and an average person when it came to finances.  His other father was his friend’s dad who was a high school drop-out (I think), an entrepreneur, and managed to become wealthy through real estate and I believe owning a few grocery-type of businesses. 
The main concept of the book is that rich people make a strong distinction between an asset and a liability.  For example: Most people believe their primary residence is an asset, while Kiyosaki states that your primary residence is a liability.
Let me clarify by defining an asset and a liability.  An asset is something that bring money into your pockets.  Examples of an asset are your income, dividend payments, interest payments from your portfolio, rental income, etc.  A liability is something that takes money out of your pockets.  Examples of this are: your bills, insurance payments, rent, mortgage payments, etc. 
So, by this definition, your primary residence is a liability.  Many would argue that your home is not a liability because it increases in value.  Well, that may be true, but it is not guaranteed.  There is a large chance that your home, regardless of where you live, may decrease in value by the time you are ready to sell.  In the meantime, it has costed you a great deal of money in the form of rent or a mortgage, utility bills, insurance, and so on. 
While nobody can argue that a home is a necessity, the argument here is to shift your perspective of your home and focus your efforts and attention to other things. 
What rich parents teach their children is to accumulate assets.  Assets, as defined above, are items that will put money into your pocket.  So, how does this apply to individuals such as ourselves?
1)     Make an effort to purchase assets, some examples are:
o   An investment property
o   Stocks and bonds
o   Starting your own business
2)     Pay yourself first before paying others first
o   If you must make a choice between paying off more of your principal on your mortgage or purchasing more stocks/bonds.  The choice is to purchase more stocks/bonds.
§  **This bullet doesn’t come from the book**  It is simple arithmetic.  On average an index fund covering the S&P 500 will return about 4% on average (this is a conservative estimate) over the course of a lifetime.  If your mortgage rate is 3.5% then you are still improving your situation.  In addition, the interest is deductible.  If you are in a situation where your mortgage rate is greater than what you can procure as a return then see if you can refinance your loan.
3)     Asset and wealth accumulation is more about modifying your behavior than anything.
o   No matter who you are, you have a limited amount of disposable income after you have covered the necessary costs to live and function.  How you choose to spend the remaining money will define your financial situation.  The right choice is to accumulate more assets.  Similar to going to the gym, accumulating assets is difficult and requires discipline.  And, like going to the gym, you will feel a lot better afterwards knowing that you made the right choice and are setting yourself up to be financially healthy.
4)     Take action now
o   If you are scared or unsure of what to do then take the time you have now to learn to make the right decisions.  Read the necessary literature, talk to the experts to figure out the answers you need, and take classes on what you want to learn.  The worst thing you can do is to do nothing.  Over the course of time, you will lose if you take no actions.  Inflation will wither the value of your savings if you do not place it in the right vehicles.
Overall, I found this book to be a good launching point to developing an investment philosophy.  It is easy to read and the fact that it runs parallel to his storyline makes it easy to digest.  That being said, he covers many other points such as taxes, foreclosures, and investments that I did not touch base on.   

In short, I recommend this book.  Thank you for reading and if you have any questions please feel free to comment or reach out!!  Also please subscribe for future posts!!

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