Wednesday, November 16, 2005

Rich Dad Poor Dad - mixed feelings but overall a very solid book

I jut finished re-reading Rich Dad Poor Dad. I had read it two years ago over a school vacation but couldn't for the life of me remember if I had even finished it. Upon finishing it a second time, I remembered I had finished it the first time. I have a memory like swiss cheese.

Anyways, the book on whole is very good. If you read with a healthy bit of skepticism and a grain of salt, it is a very valuable action plan for successful financial management. In particular I am very taken by the books simple, unique definition of assets as something that passively creates income. The definition of a liability on the other hand is something that creates expenses. The traditional definitions are: asset - anything owned that has cash value; and a liability more or less as a debt.

I think that for someone who is trying to build wealth at an accelerating rate Rich Dad's definition of assets is more useful. If you, like me, want to amass a sizeable net worth in a relatively short period of time then the most traditional asset, a house, is not really going to help you that much. A house is going to obligate you to pay taxes, interest on the mortgage, and maintenance creating a very small amount of net worth each month as a percentage of the payment. This doesn't say don't buy a house, but recognize it as both an asset (in the traditional sense) and a liability (in more ways than just the mortgage). The genius of Rich Dad Poor Dad is the simplicity in which this concept is conveyed using common sense diagrams.

This is just a small fraction of the things in the book that I wish my parents had taught me. But the book does have cons as well. The macroeconomic commentary is painfully oversimplified and in some cases completely wrong - inflation is caused by the quantity of money in an economy not by doctors and lawyers raising their rates.

If you're looking to become financially savvy, it is a great place to start. I bought a third copy and sent it to my little brother. If you're already fairly savvy it is an interesting not altogether traditional take on personal finance and building wealth. It is an easy read far disproportionate to how much you will learn from reading it.

UPDATE: I at first didn't think this warning was necessary, but after reading this, i feel it is pertinent to say: Take Kiyosaki's advice with a grain of salt. He has some great points, but (if it wasn't obvious from his writing style) John Reed provides more than sufficient evidence that Kiyosaki can be a pedantic blowhard.


Alex Givant said...

I've read couple of his book, generally the same stuff: Monolopian presentation of real life. You may want to check some of his critics:

Alex Givant said...