‘Rich Dad’s Guide To Becoming Rich – Without Cutting Up Your Credit Cards’
As part of my year of thinking about money, I’ve been a regular in the library, working my way through a pile of books on personal finance.
This includes ‘Rich Dad’s Guide To Becoming Rich Without Cutting Up Your Credit Cards’, the first book I’ve read of what I’ve since discovered is a prolific series beginning with ‘Rich Dad, Poor Dad’ in 1997.
It was published in 2011 by Robert T. Kiyosaki, and from what I can see from other reviews on the web, has come in for some criticism for containing no new content if you’ve read his earlier books. It’s a slim book, and if you’re interested in what he has to say within, you’ll definitely need to read more on the topic to get the detail. Having since borrowed from the library two of these earlier books, ‘Rich Dad’s Guide To Investing’, and ‘Rich Dad’s Cashflow Quadrant’ (‘Rich Dad, Poor Dad’ still not being available on the local shelves…), it’s obvious that they are more hefty tomes.
What’s ‘Rich Dad, Poor Dad’ all about?
For the uninitiated, the books share the money lessons Kiyosaki says he learnt from his two dads: his real dad, or ‘Poor Dad’, who followed a traditional path of gaining a good education, and holding a responsible job for the government in Hawaii, before losing his job in mid-life and struggling with the consequences; and his best friend’s dad and mentor, ‘Rich Dad’, who was a successful real estate investor and had an entirely different approach to money. The books are non-fiction, and this one is sprinkled with facts about himself and each dad, as if a true story. However, the book reads like a parable and I suspect liberal application of poetic license to convey his message.
Who doesn’t want to pick up some get-rich-tips?
So what is the book about? Firstly, who doesn’t want to read a guide on how to become rich?! Any tips on how to improve my financial position would not go amiss! And I for one don’t want to cut up my credit cards, so I read on. The book claims to help you transform bad debt into good debt, and there’s certainly some information in here about the difference between each.
He defines good debt (of which, he says, the rich tend to have lots) as debt which someone else pays for you (for example, tenants paying the mortgage on your investment property); and bad debt (of which the poor tend to have most) as mostly credit card and consumer debt, which you take to buy liabilities and pay off yourself – and which can cripple you financially if you let it get out of hand. This definition of good debt differs slightly from the definition I saw recently, which was debt taken out on an asset that appreciates in value, though I’m guessing Kiyosaki’s good debt also often involves appreciating assets.
Addressing the credit cards of the book title, that he doesn’t want us to cut up, he explains that the ‘Rich Dad’ philosophy is to expand our means to pay for the lifestyle we want rather than deny ourselves. I imagine lots of us relate to this – I don’t mind cutting back for a time but, long-term, it’s definitely more enjoyable to do what we want without focusing constantly on how much things cost.
However, you have to read half way-through the book before he addresses debt, and I almost forgot that this was the aim of the book. When you get to the debt section, you’ll find very sensible, straight-forward debt-busting tips, similar to the advice I’ve found in every other personal finance book – manage your cash flow (in other words, spend within your means), and pay off your debt! If this seems to be a contradiction of Rich Dad’s message of not ‘living cheaply’, or constantly spending only what we can afford while we crave more expensive items, he explains this as being a necessary first step in order to get you on the right track.
The price we pay
Instead most of the book seems to follow the key message that in order to get rich we have to pay the associated price, which means adopting the behaviours and activities of those who have successfully achieved wealth.
He refers back to his earlier book, ‘Cashflow Quadrant’, where apparently he distinguishes between 4 groups of people: the Employed, the Self-Employed, the Big Business Owners, and Investors. Those in the Employed and Self-Employed categories will find it almost impossible to get rich, while the vast majority of wealth is held by those in the Business and Investor groups.
The Employed and Self-Employed rely mostly, or entirely, upon their salary (or ordinary earned income). This type of income is taxed the most, is taxed even more if we get a pay rise, and also ceases if we stop working. He compares this to passive income and portfolio income, such as rental income from property, or income from investments, of which the rich tend to have far more. This income is taxed more leniently, and it is not dependent on us working. Kiyosaki’s income is apparently comprised of 10% ordinary earned income, 20% portfolio income, and 70% passive income.
Sitting squarely as I do in the ‘Employed’ category, with only ordinary earned income, only too aware that if I were to stop working my income would disappear with it, I agree wholeheartedly that I’d have more financial security if I were able to shift towards earning some passive or portfolio income. The only problem is I don’t have the answer on how to do that from this book!
Shift in the right direction
He advises allowing 5 years to make such a shift, which maybe gives some hope that it could be achievable if we were to focus on the task and do the right things. He touches on some of the reasons why it’s difficult to make the change. Fear of failure, fear of losing money, fear paralysis. Also how it’s difficult to do something different if emotionally we’re not ready to take action, even if mentally we understand the concepts.
The work I’ve done so far this year, for example trying to get to grips with my budgeting, is financial common-sense. Kiyosaki too stresses both the importance of having positive cash flow at the end of the month, and of checking your financial statements regularly (he does a financial audit twice a month). However, he also says people often become trapped despite wanting to make a change, and at present I need a lot more information in order to see how I could possibly apply the broad principles in this book to my life.
This book is quick to read, and the tips on reducing bad debt are useful (but nothing you won’t find elsewhere). I found the introduction to his views on why some of us become rich and reach financial freedom, whereas most of us don’t, to be the most interesting part of the book. Personally I currently feel uncomfortable with the concept of borrowing lots of money in ‘good debt’ (assuming banks would lend it to me!), though I did find the book motivating. It’s made me want to go and read the original ‘Rich Dad, Poor Dad’, and some of the other related books, to see if they provide any of the detail I’d need to move a step closer to improving my finances. I liked the book as a taster of the lengthier books to come.