Friday, July 9, 2010

Rich Dad Poor Dad: What's an asset?

I hope that you've had a chance to look into some of the books about personal finance I've recommended in the past. Rich Dad Poor Dad is one that has been around for a while now. Robert Kiyosaki has created an entire brand around the title of this book which has its own line of instructional board games and personal finance seminars, not to mention a whole slew of other books. The ideas in his book can be a bit abstract sometimes but very insightful once you understand what he's getting at. There are many lessons in which he preaches in his book, I will try to go over a few of them briefly, but to get the full impact of the lessons it would be best to give it a read.

The story in which Kiyosaki tells is one of growing up with two dads. One is his biological father and the other is his best friend's father. Both have great influence over Kiyosaki as he grows up, but have very different outlooks on life and how to go about making a living. Kiyosaki's biological father is known as Poor Dad. He made a living as a teacher who eventually became the superintendent of the entire district school board. He always preached to Kiyosaki that he should get an education then get a secure well paying job. Kiyosaki's Rich Dad on the other hand made a living as an entrepeneur who owned several businesses. Rich Dad preached that the path to freedom and wealth was to own and operate businesses. Kiyosaki was always confused by the lessons taught by his Dads since they differed greatly from one another. Poor Dad's mentality on living life was very risk adverse while Rich Dad's mentality on living life was full of risk.

For now I'll leave that lesson about entrepeneurship since it can be very lengthy. I will be sure to post more on Kiyosaki's entrepeneurial lessons in the future. Another important lesson in his book is when Kiyosaki creates a definition for an "asset." He defines an asset as something that provides positive cash flow. He tries to explain how most people are confusing what an actual asset is, since a majority of people think there biggest asset is their home. Although you are building equity in home ownership, it does not provide a positive stream of income (unless it's a rental property). The important thing to note is that your home is more of an expense then it is an asset. Every month you have to pay property tax, utilities, a mortgage and maintenance fees. In the end you are working for your home, your home is not working for you. It does not actually put money in your pocket at the end of the day. Once you understand what Kiyosaki defines as an asset and can distinguish between what is an asset and what is an expense, than the path to true wealth is to gain as many assets as possible.

Rich Dad Poor Dad is filled with valuable lessons. I will have more posts in the future about the many different lessons from Rich Dad Poor Dad. The one thing that I really feel that this book lacks however is the concrete examples of how Kiyosaki would go about building wealth. He explains a lot of principles but does not go into to many details. He leaves it up to the reader to go out and get the information. The lessons are important and they are quite inspiring. I highly recommend starting with this book and reading some more of Kiyosaki's work in the Rich Dad series.

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