Rich Dad Poor Dad: What the Rich Teach Their Kids About MoneyThat the Poor and Middle Class Do Not!

Financial struggle is often the result of people working all their
lives for someone else.
The primary reason the majority of the poor and middle class are
fiscally conservative—which means, “I can’t afford to take risks”—is that
they have no financial foundation. They have to cling to their jobs and play
it safe.
When downsizing became the “in” thing to do, millions of workers
found out their largest so-called asset, their home, was eating them alive.
Their “asset” was costing them money every month. Their car, another
“asset,” was eating them alive. The golf clubs in the garage that cost $1,000
were not worth $1,000 anymore. Without job security, they had nothing to

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fall back on. What they thought were assets could not help them survive in
a time of financial crisis.
I assume most of us have filled out a credit application to buy a house or
a car. It’s always interesting to look at the “net-worth” section because of
what accepted banking and accounting practices allow a person to count as
assets.
One day when I wanted a loan, my financial position did not look too
good. So I added my new golf clubs, my art collection, books, electronics,
Armani suits, wristwatches, shoes, and other personal effects to boost the
number in the asset column.
But I was turned down because I had too much investment real estate.
The loan committee didn’t like that I made so much money from rent. They
wanted to know why I did not have a normal job with a salary. They did not
question the Armani suits, golf clubs, or art collection. Life is sometimes
tough when you do not fit the standard profile.
I cringe every time I hear someone say to me that their net worth is a
million dollars or $100,000 dollars or whatever. One of the main reasons
net worth is not accurate is simply because, the moment you begin selling
your assets, you are taxed for any gains.
So many people have put themselves in deep financial trouble when
they run short of income. To raise cash, they sell their assets. But their
personal assets can generally be sold for only a fraction of the value that is
listed on their personal balance sheet. Or if there is a gain on the sale of the
assets, they are taxed on the gain. So again, the government takes its share,
thus reducing the amount available to help them out of debt. That is why I
say someone’s net worth is often “worth less” than they think.
Start minding your own business. Keep your daytime job, but start
buying real assets, not liabilities or personal effects that have no real value
once you get them home. A new car loses nearly 25 percent of the price you
pay for it the moment you drive it off the lot. It is not a true asset even if
your banker lets you list it as one. My $400 new titanium driver was worth
$150 the moment I teed off.
Keep expenses low, reduce liabilities, and diligently build a base of
solid assets. For young people who have not yet left home, it is important
for parents to teach them the difference between an asset and a liability. Get
them to start building a solid asset column before they leave home, get

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married, buy a house, have kids, and get stuck in a risky financial position,
clinging to a job, and buying everything on credit. I see so many young
couples who get married and trap themselves into a lifestyle that will not let
them get out of debt for most of their working years.
For many people, just as the last child leaves home, the parents realize
they have not adequately prepared for retirement and they begin to scramble
to put some money away. Then their own parents become ill and they find
themselves with new responsibilities.
So what kind of assets am I suggesting that you or your children
acquire? In my world, real assets fall into the following categories:
• Businesses that do not require my presence I own them, but they
are managed or run by other people. If I have to work there, it’s
not a business. It becomes my job.
• Stocks
• Bonds
• Income-generating real estate
• Notes (IOUs)
• Royalties from intellectual property such as music, scripts, and
patents
• Anything else that has value, produces income or appreciates,
and has a ready market
As a young boy, my educated dad encouraged me to find a safe job. But
my rich dad encouraged me to begin acquiring assets that I loved. “If you
don’t love it, you won’t take care of it.” I collect real estate simply because
I love buildings and land. I love shopping for them, and I could look at
them all day long. When problems arise, the problems aren’t so bad that it

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changes my love for real estate. For people who hate real estate, they
shouldn’t buy it.
I also love stocks of small companies, especially start-ups, because I am
an entrepreneur, not a corporate person. In my early years, I worked in large
organizations, such as Standard Oil of California, the U.S. Marine Corps,
and Xerox Corp. I enjoyed my time with those organizations and have fond
memories, but I know deep down I am not a company man. I like starting
companies, not running them. So my stock buys are usually of small
companies. Sometimes I even start the company and take it public. Fortunes
are made in new stock issues, and I love the game. Many people are afraid
of small-cap companies and call them risky, and they are. But that risk is
diminished if you love what the investment is, understand it, and know the
game. With small companies, my investment strategy is to be out of the
stock in a year. On the other hand, my real estate strategy is to start small
and keep trading up for bigger properties and, therefore, delay paying taxes
on the gain. This allows the value to increase dramatically. I generally hold
real estate less than seven years.