Michaela BroyerProfessor SahlyPersonal Finance12/11/2017Rich Dad Poor Dad vs.
Financial Peace”If you don’t take risks, you become subject to someone who does” is a phrase fitting to the primary objectives and teachings of Robert Kiyosaki, author of Rich Dad, Poor Dad. Kiyosaki offers a multitude of valuable as well as engaging financial lessons. Furthermore, his lessons are reinforced by his many personal life experiences and encounters.
One of the most valuable lessons Kiyosaki offers his readers is a new perspective on how one can use their money to their advantage by taking an entirely new perspective on how making money is viewed. Within Kiyosaki’s renowned financial guidance book, Rich Dad, Poor Dad, he introduces his financial background through various anecdotes from his childhood and how the choices he made would ultimately impact his financial choices for the rest of his life. He continually returns to his memories of how having a “rich dad” and a “poor dad” enabled him to have a choice for the type of financial education he was to receive.
He conclusively makes the choice to take advice from his “rich dad”. His “rich dad” then endeavors to teach him six vital financial lessons. In order to get his point across to its fullest extent, his “rich dad” uses numerous unusual but nevertheless profound techniques to build Kiyosaki’s financial literacy. These six financial lessons are explained in great depth in Rich Dad, Poor Dad. The first financial lessons to be introduced states that the rich don’t work for money, it works for them. What this means is that generally poor people allow one of two emotions, fear and/or greed, to control them which leaves them stuck in an endless cycle of remaining financially hapless. However, people who are financially literate learn to equally understand and manage such emotions to work towards your favor.
This method is effective because it leads you to the mindset of observing instead of reacting. Kiyosaki explains that it is common for people to react, usually because they either are filled with greed for more money or fear of losing money. However, reacting would once again leave you in the endless cycle of what “rich dad” refers to as The Rat Race. This Rat Race is the persistent hunt to work for money rather than making your money work for you.
Another one of Kiyosaki’s key lessons delves into the process of “minding your own business” or rather, buying or starting a company not only for financial security but also to boost net worth. This is as opposed to merely using your profession on its own to build net worth. This idea elaborates on his comparison between his “rich dad” and his “poor dad”.
While his “poor dad” encourages him to do well in school so he can work for a good company, his “rich dad” encourages him to work towards buying and owning his own company to boost his available means. In addition to buying businesses, Kiyosaki also advocates towards buying real estate and individual stock in pursuance of assets. Assets are essential to the principal ideas that Rich Dad, Poor Dad has to offer. As Kiyosaki describes, assets are better understood when compared with liabilities. In simpler terms, assets bring in money while liabilities take in money. As long as the two aspects balance then you are able to keep a healthy cash flow between the two.
In Rich Dad, Poor Dad, investing for cash flow is promoted over investing for appreciation. One of the main assets explained in the book was real estate. One of the more controversial ideas Kiyosaki professes is that your personal home is a poor asset if you pay it off in full and own your home because it isn’t investing and gaining you any money once the bank has the money. Instead, he believes that renting out property and collecting income from rental properties holds superior value as an asset. This is considered controversial because most people want to be able to own their own home and be able to do what they want with their own land. From an investment standpoint, according to Kiyosaki, this does not invest your money as well as renting out a home would.While Kiyosaki is considered one of the most influential figures in financial education, not everyone shares his views. One of those people is Dave Ramsey, a financial radio show host and author of Financial Peace.
Ramsey’s teachings benefit those who want to live a more financially peaceful lifestyle. Kiyosaki and Ramsey often have contradicting messages of how one should build wealth. Despite this they also share some interesting similarities with a few of their core teachings. For example, Kiyosaki teaches that you start or buy a business if you want to accumulate wealth.
On the other hand, Ramsey teaches that to begin accumulating wealth you formulate a budget and live a frugal life. Another rift separating their teachings is that, as mentioned earlier, Kiyosaki views owning your own house as a poor asset whereas Ramsey endorses buying and paying off your home. Overall, the biggest difference between the two of them is their views on debt. Kiyosaki teaches that debt is okay as long as you are able to use it to your advantage and pay it off with your assets (once again returning to the idea of balancing your assets and liabilities). Meanwhile, Ramsey remains firm in opposing any type of debt, often using the phrase that “any debt is bad debt” and that you should pay off your debt in full as soon as possible. Whereas opening up to the idea of debt allows Kiyosaki to attempt leveraging techniques with real estate to establish and amplify his wealth. Ramsey would see leveraging of one’s debt as a major risk.
On the other end of the spectrum, Kiyosaki and Ramsey do share a few elements of financial education. Both, for example, believe in avoiding purchasing cars with credit cards because they accumulate debt so quickly and become too much of a liability. Furthermore, although Kiyosaki and Ramsey believe in different investments patterns, each of them relies on investing as their prominent method to accrue wealth. Finally, one of the main ideas that they have in common is their usage of the KISS principle in regards to finances. The KISS principle is nothing more than the phrase “Keep It Simple, Stupid” which condones that you will succeed in building wealth as long as you keep it simple and don’t over complicate your finances. Yet one of the differences they have with this principle is that Kiyosaki leaves room for mistakes and even teaches that they will be made throughout your wealth building process. Ramsey’s methods of wealth building are formulated to be almost guaranteed with no mistakes. I believe there are positive and negative factors to either of their teachings.
First, one must take into account that even if their teachings are in opposition to each other, they often concern two different audiences. That is, Rich Dad, Poor Dad has a plan that makes you wealthier if you are already in a decent financial situation which enables you to follow the plan in the first place. Dave Ramsey’s Financial Peace plan will give you more peace in your current financial situation and get you out of crippling debt. I feel that I can apply this to myself because it I believe it is possible to use both plans in moderation to establish a strong financial foundation through Ramsey’s plan and then to use that discipline in Kiyosaki’s plan to increase your profits exponentially. To incorporate both plans into my personal financial goals, there are a total of four plans I learned in my readings that help me achieve such goals.
The first plan is to set a budget as suggested by Ramsey and use that budget to not spend more than I make. Next, I want to be aggressive in my business ventures so that I don’t live in fear of risks as Kiyosaki was taught to avoid fear and greed. I will be aggressive in my business ventures so that I may direct how my revenue progresses and grows. Following Kiyosaki’s teachings, I will use whatever debt I may acquire in my business ventures and use that to generate a good system of cash flow. Even though this means that I will be going against Dave Ramsey’s “no debt” policy, I believe there are certain situations where debt may absolutely be used effectively. Finally, I will create multiple streams of income that will diversify how I build my net worth which involves ideas used by both Ramsey and Kiyosaki.
In conclusion, being able to have multiple new perspectives on how to build wealth and prosper not only improved my understanding of how money works but also how I can make money work for me. Now that I am equipped with knowledge of how to create an effective cash flow system with assets and liabilities I can build on the concepts of discipline that were taught by Dave Ramsey. This will absolutely help me in my future endeavors to invest wisely, save my money, and have a financially flourishing lifestyle.