7 Rich Dad Lessons for Getting Rich

Dear Reader, 

When I was young, I didn’t like school, and I wasn’t very good at it. My poor dad, who was the head of the Hawaii school system, pushed me to do well at school. For him, doing well at school equaled doing well in life. His idea of success was getting good grades so that you could get a good job.

My poor dad was very smart academically, but he was not very successful when it came to money. He constantly struggled from month to month, and by the end of his life, he was penniless, having lost all his money on various bad business deals.

My rich dad also believed in a good education, but one that focused on financial education. “You need to learn how money works so that you can make it work for you,” he said.

My rich dad didn’t even finish school, and he wasn’t very good at it while he was there. But as a young man, he did help run his family store, and he gained significant street smarts. He used that education to build an empire of his own. 

Below are the top seven lessons I learned from my rich dad about how money works, but more importantly how money can work for you. 

#1  Don’t live below your means

When I hear money gurus say, “Cut up your credit cards, buy a used car, and live below your means,” I know they mean well. But as my rich dad said, “Everything has a price.” And the price for becoming rich by being cheap is that you still wind up being cheap. And living life as a rich but cheap person is, in my opinion, a very high price to pay.

Rich dad also said, “The problem is not the credit cards. It is the financial illiteracy of the person holding the credit cards that is the problem. Getting financially literate is part of the price you need to pay to become rich.”

And that is why so many people do not like the idea of cutting up their credit cards and living below their means. Given the choice, I think most people would rather enjoy this life as rich people who enjoy rich lives. And they can if they are willing to pay the price.

There are many reasons that I do not join the bandwagon that says, “Cut up your credit cards, get out of debt, and live below your means.”

I don’t say those things because I don’t think that advice solves the problem for anyone who wants to be rich. For people who want to have a lot of money and enjoy the lifestyle that money can bring, simply cutting up your credit cards and getting out of debt does not solve that problem, nor does it necessarily make people happy. 

On just basic financial principles, I do agree that cutting up your credit cards is good advice for most people. But simply getting out of debt does not work for anyone who wants to become rich and enjoy life. If a person wants to become rich, a person needs to know how to get into more of the right kind of debt, learn how to respect the power of debt, and learn how to harness the power of debt. 

#2  Work to learn, don’t work to earn

Instead of taking jobs for the money take jobs for the experience. For example, if you want to gain experience in how business systems work, get a part-time job at McDonald’s. You would be surprised at what happens the moment a customer says, “I want a Big Mac and fries.” The moment that happens, one of the world’s best-designed business systems takes over. It is a brilliantly designed system run primarily by people with only a high school education.

I worked at Xerox to learn to sell. As a rookie capitalist, I knew my primary job was to learn how to raise capital. Today, that is still my primary job. If you ask any entrepreneur, they will tell you the same thing. Their primary job is to raise capital from customers, investors, and from employees’ labor.

I often recommend a network-marketing business to gain the same skills and experience. We know that if you can sell, handle rejection, and develop your leadership skills, you have an excellent chance for success in the B and I quadrants. 

#3  The most important thing is cash flow

If there’s one thing the rich do differently than the poor, it’s that they put their money to work instead of working for their money. What does that mean? Their money isn’t just sitting around in a savings account, accruing little-to-no interest, waiting for a rainy day. Their money is being invested and delivering a return.

Different investments produce different results. The question is, what results do you want?

Cash flow is realized when you purchase an investment and hold on to it, and every month, quarter, or year that investment returns money to you. Cash-flow investors, unlike capital-gains investors, typically do not want to sell their investments because they want to keep collecting the regular income of cash flow. 

If you purchase a stock that pays a dividend, then, as long as you own that stock, it will generate money for you in the form of a dividend. That is called cash flow. To cash flow in real estate, you could purchase a single-family house and, instead of fixing it up and selling it, you rent it out. Every month you collect the rent and pay the expenses, including the mortgage. If you bought it at a good price and manage the property well, you will receive a profit or positive cash flow.

The cash-flow investor is not as concerned as the capital-gains investor whether the markets are up one day or down the next. The cash-flow investor is looking at long-term trends and is not affected by short-term market ups and downs.

#4  The rich don’t pay taxes

If you want to be rich, you need to play by the rules of the rich. Meaning, the rules of money are skewed in favor of the rich, and against the working and middle class.

The rich pay very little in income taxes because they don’t earn their money as employees do. They know that the best way to legally avoid taxes is by generating passive income out of the right side of the CASHFLOW Quadrant—the Business (B) and Investing (I) side.

If you earn your income on the left side of the quadrant, the only tax break you have is to buy a bigger house and go into greater debt. But the rich have scores of tax breaks offered to them by the government to encourage investment and business development, which generates more jobs. The rich can make millions of dollars and pay virtually nothing in taxes.

One example of this is the government’s desire to have more affordable housing available to the general public. Because of this, rental income is treated as passive income, the lowest-taxed income. Additionally, you are allowed to write off all expenses for your investment property, and you can depreciate your property each year. Depreciation is a phantom income because it is a loss you can take against your taxable income, even though you didn’t lose any money. This allows you to pay less in taxes. If you invest in certain types of multi-family properties, you can even qualify for more tax breaks depending on the zones you’re developing in and the type of affordable property you’re investing in or building.

#5  Learn how to read a financial statement

The reality is that money doesn’t make you rich. What does make you rich is your financial IQ. Give the same $100,000 to a person with a low financial IQ and a person with a high financial IQ and I guarantee you’ll see a vast difference in how that money is spent and grown.

Central to the difference between those with low and high financial IQs is a simple but profound literacy: the ability to understand a financial statement.

One of the most important things you need to know to be financially successful is to know how to read an income statement and balance sheet. But even more important is understanding the relationship between them. 

My rich dad felt that the relationship between the two was everything. “How can you understand one without the other? How can you tell what an asset or liability is without the income column or the expense column?” he asked.

For rich dad, understanding the relationship between the two allowed you to easily see the direction of your cash flow to easily determine if something was making you money or not.

If something was making money, it was an asset. If not, it was a liability.

“Just because something is listed under the asset column does not make it an asset,” said rich dad. “The reason people suffer financially is that they purchase liabilities and list them under the asset column.”

#6  CASHFLOW Quadrant

Not all income is created equal. Passive income, the kind of income generated on the right side of the quadrant is much better than earned income, the kind earned on the left side of the quadrant. Passive income is taxed less, and it’s also a result of cash-flowing assets, not selling your time as an employee.

In the E and S quadrants, the more you earn, the more you pay in taxes. In the B and I quadrants, percentages go the other way. The I quadrant pays the least in taxes. On the right side, the more you earn, the less you pay in taxes.

This does not mean the rich do not work hard. They just work hard for something else. They work hard to acquire assets that put more money in their pockets and allow them to keep (thanks to better tax rates) more of what they earn.

But here’s the catch, not just anyone can start making passive income on the right side of the CASHFLOW Quadrant. It takes financial intelligence to start a successful business and to make great investments. The good news is that anyone can increase his or her financial intelligence through financial education.

#7   C Students can be successful too

Since I never achieved good grades—I was the eternal “C” student. My life was transformed from that of a “C” student on the grading scale of academia to a “C” student in the world of capitalism.

I no longer cared what my high school and college grades were. The only report card that counts for “C” students in the world of capitalism is their financial statement.

The problem with school is most kids come from homes (context) where parents work for ordinary income and went to school (context… reinforced) to learn to work for ordinary income. This is education, not transformation.

The reason transformation is difficult, even for “A” students, is because transformation requires emotional intelligence more than any other kind of intelligence.

When people learn to transform their money from ordinary income to portfolio and passive income, they begin their transformation from the context of the E-S quadrants into the context of the B-I quadrants. It is the same transformation process a caterpillar goes through before becoming a butterfly.


Robert Kiyosaki

Robert Kiyosaki
Editor, Rich Dad Poor Dad Daily

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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