Review: Rich Dad Poor Dad

I recently read a book on personal finance titled "Rich Dad Poor Dad" by Robert T. Kiyosaki.  It tells things about personal finance which should be common sense.  It is worth reading the book because it does get you thinking.  Here is what I found useful in the book:

Work to Learn: When you choose a job, do not choose it on the basis of money, rather choose it on the basis of what it will teach you.

Active income is what you work for as an employee or self-employed person.

Passive/portfolio income is generated by your investments or businesses you own.

Invest: You should systematically invest your active income in order to grow your passive/portfolio income.  At the same time avoid buying stuff that will increase your recurring expenses.

Financial independence: When your passive/portfolio income becomes more than your expenses, you become financially independent.  Once you get there, you may choose to retire or do whatever you want.

Buy luxuries last:  First invest then buy luxuries from investment income after you achieve financial independence.

To manage your investments (i.e., shares, mutual funds, deposits, real-estate, businesses run by others, etc.) you should learn the following:

1. Accounting: You should be able to read balance sheets and other financial reports.
2. Investing: Learn about basic principles of investing.
3. Markets: Learn about markets (Stock market, real-estate markets, etc.).
4. Laws: Learn about taxes and other relevant laws and take advantage of them.

Take some risks:  Most of us play too safe because of fear and hence lose out on big gains.  You can take more risks if you have the power of knowledge.  The more you know the more investment opportunities you will be able to identify.  And thus create more assets that generate passive/portfolio income for you.

The book is a nice read.  English is very simple.  You rarely get bored.  I would say it is rather entertaining.  It is also reasonably short which is nice.  However there are caveats.

Caveat 1: At many places the author presents his ideas in such a manner that they sound controversial.  For example, the book seemingly ridicules the idea of getting a good education and working hard throughout your life to get rich.  But if you read it carefully, the author is not saying don't get a good education, or don't work hard.  He is merely saying that these two things may not be enough to get rich.  Getting rich also requires financial education is what he points out throughout the book.  Stating things in a controversial tone probably attracts attention and sales.  However, I would say that it also gets reader's attention to something that should be common sense and yet ignored by many.

Caveat 2: Some specific advice in the book may be dangerous for some one who doesn't know what s/he is doing.  For instance, the author gives examples of how he bought real-estate at a bargain price and resold them quickly to make a small fortune in a short span of time.  However, it took him years of  learning and experience in real-estate market before he was able to make such deals.  In other examples where he did well, he may simply have been lucky.  So my suggestion is to take specific advice in this book with a big grain of salt and focus on overall ideas.

Caveat 3: The book has its own definitions of the terms "assets" and "liabilities" which are different from definitions commonly understood in accounting.  This however does not create much of a problem.

I wish I had read this book a decade or two earlier because that would have strengthened some of my ideas and I would have become financially independent sooner.  Saying that I independently had some of the ideas in the book is not saying much because there is no rocket science in the book.  It is all common sense or rather simple arithmetic.

Rating: ****