Skip to main content

Should you read Rich Dad, Poor Dad?

If you, like me, listen to real estate or financial independence related podcasts, you probably have heard people mentioning Rich Dad, Poor Dad by Robert Kiyosaki as their favorite Real Estate related book. There is even a person who counted it! In about 300 episodes of the Bigger Pockets Real Estate podcast, the guests mentioned it 135 times (source) !

So, should you read it then? If so many people recommend it, it can’t be a bad book, right? Well, until recently I didn’t have an opinion, but this month I finally read that book and I can report back to you. It was a quick and exciting read, but I wouldn’t recommend it.

Here is why:
  • Rich Dad, Poor Dad makes an Investor lifestyle look very appealing and a regular job very unattractive, but it doesn't present a fair perspective
  • The book encourages risky investment types and contains dangerous advice
  • There are some good tidbits that can point you in the right direction, but overall provides little practical value. If you want to actually learn about personal finance or investing, there are much better books out there.

That said, I have to acknowledge that the book is quite fun and exciting to read and was useful to many people.

By Source (WP:NFCC#4), Fair use,

Biased view against working a job

Author uses two Dads, "poor dad" who is his actual dad and works as an employee and the "rich dad" who is his friend's dad, businessman and investor. Poor dad's employee lifestyle is described as an example of a rat race, a trap, where your freedom and happiness are limited and you end up poor. That happens regardless of your employee earnings and lifestyle. On the other hand the "rich dad" life is full of freedom, control, wealth and excitement. The book doesn't offer a balanced perspective on those two choices, instead it's extremely biased and omits the good points of being employed and bad points of being an investor or a business owner.

Even though the biggest problem with the "employees" stems from living beyond their means, this is not a unique problem to being an employee, business owners can suffer the same problem. Instead of focusing on this specific problem and advising how to minimize your expenses and earn more and invest, the book takes a different approach. It focuses on discouraging you from being an employee. The only good strategy according to the book regarding employment, is to work to learn. But you shouldn't work to earn money, because according to the book, a JOB is a trap and will make you broke anyway.

Here is an example quote on the topic from the book:

"Job is an acronym for 'Just Over Broke.' Unfortunately, I would say that applies to millions of people. Because school does not think financial intelligence is intelligence, most workers live within their means.”

And another:

"Once people are trapped in the lifelong process of bill-paying, they become like those little hamsters running around in those metal wheels. Their little furry legs are spinning furiously, the wheel is turning furiously, but come tomorrow morning, they'll still be in the same cage. Great job."

There is some truth in that, there are people who have low paying jobs and really struggle, there are also people who are suffering from lifestyle inflation, when their lifestyle costs increase as they earn more. Those people might feel trapped in their jobs. There are however many people who have a healthy savings rate and enjoy their jobs and being an employee, not always being in charge of everything.

On the other hand, not every investor and entrepreneur is happy and stress free. There are many businesses that struggle and many of their owners live close to poverty line. Imagine having a physical
business during the pandemic! Many investments lose money.

I believe that both paths and lifestyles can be great for different people, but one isn't clearly better than the other.

Poor moral foundation and risky advice

Another reason, why I don't recommend this book is because, there is some advice in Rich Dad, Poor Dad that I consider unethical, illegal or is just plain risky. For example the book recommends paying yourself first before budgeting for taxes and liabilities.

The justification for this approach is that the necessity - "creditors and government shouting at you" - will force you to make more money and you will be better off by it! So, you should do it this way!

Paying yourself first is a great technique to prioritize saving and investing vs inessential wants, but it shouldn't be used to justify not paying back your creditors. This is not only bad for business (try borrowing money again after not paying it back!), but it could put you in a lot of trouble. It’s also unethical, since you would be breaking other people's trust in you.

Another problematic advice is about using a corporation as a tax shelter for personal wants.

Using a company for investment or conducting business in general makes a lot of sense. Companies have lower tax rates than individuals in many countries. This is a case in the USA (where the author is from) and in Ireland where I live. In the case of Ireland the tax rates for companies are 12.5% (trading income) and 25% (non trading income, e.g. rent) and you pay taxes from profits (income - expenses). As an individual, you can also deduct certain expenses from certain types of income. For example the expenses related to renting out a house, can be deducted from the taxed income from rent, making your taxes smaller. This is the same for companies and individuals.

Generally the higher your earnings, the higher is your tax rate for income tax (e.g. 52% in Ireland), so having a company that has a lower and fixed rate sounds better, right?

Not so fast, if you want to legally take the money out of the company (as a salary to you or as dividends), the money has to be taxed again! Effectively, you will be paying the tax twice.

Here is an example, assuming rental income, you would get net X income times 0.75 * times 0.48 = 36% of X.

The real tax advantage of the company happens when the money is not taken out, but is instead reinvested at the lower tax rate and compounds over years.

The author however advises using a company to fund personal expenses such as a fancy car or company business trips to Hawaii, this is bad and illegal advice that can cause people a lot of trouble. The only expenses that can be deducted from taxes are the ones necessary for the business and countries have precise tax laws about it.

Encouraging risky investment types

Here is another problem I see with the Rich Dad, Poor Dad - it encourages risky investment strategies.

I believe that there are no shortcuts in investing, if something sounds too good to be true, it likely is too good to be true. One shouldn’t compare investments just based on potential returns, without adjusting for risk. You might be lucky for a while, but your luck might soon expire.

I believe investing in broad index funds is generally the best way to invest for the majority of people. You will not find any advice about that in the book. The book doesn’t mention ETFs or index funds, but it does mention mutual funds. According to the book, the mutual funds are a terrible investment because of fees and poor performance. There is some truth to that, but the choice isn’t:

  • Don’t invest (or use simple bank deposits)
  • Mutual funds
  • Killer real estate deals
  • Pre IPO stocks (based on stock tips from friends)
There are more options there and there are mutual funds such as ones offered by vanguard, that don’t have the downsides presented in the book. They are low cost and passive which are a great choice for any investors. Real estate deals are fundamentally more risky (especially if you don’t have big reserves and use a lot of leverage) and also work-intensive. You can have tenants who are not paying, buyers/sellers not fulfilling their part of the contract, property issues, contractor issues, the property values might drop when you want to sell or the rehab cost might turn out double of what you have planned. I've been investing in real estate for a couple years now and the returns are steady, but not ground breaking and I have experienced my own share of problems.

The picture isn’t as rosy as Kiyosaki paints it.

The book has some good advice in it, but none of it is very deep

The author mentions the advice of his Rich Dad to know a: "Little bit about a lot" and this could also describe useful tidbits in the book. There is a little bit about a lot, but very little of actual serious knowledge.

There are some useful real estate tidbits sprinkled around the book. For example using 1031 exchange to defer capital gains taxes (there is no equivalent of that in Ireland though). Another one is that you should be buying undervalued properties or doing wholesale real estate deals (secure a contract and resale it to another buyer for profit), but very little advice on how to find undervalued deals or how to actually do wholesale legally without unnecessary risk.

Here are some other useful tidbits I found in the book:
  • don't be too dependent on your job (mind your own business)
  • avoid buying an expensive house (because it will decrease your personal cashflow)
  • pay the best professionals well
  • optimize for learning not for earning
  • learn to sell to combine it with other skills and sell them (and make a lot of money)
It has to be acknowledged that Kiyosaki is in the business of selling courses and seminars. Getting the readers excited about the real estate investing is part of his business model. Since the book doesn’t really tell you how to do any of the things described in there, the next logical step is to sign up for a course (preferably offered by Kiyosaki’s company) to build your “financial intelligence”. I would recommend anyone to be careful with paying for real estate coaching, because there are many fake gurus out there, who just want your money.


To sum it up, ven though the book is actually quite fun to read due to all the exciting stories and it contains some useful advice, my recommendation would be to skip reading Rich Dad, Poor Dad.

If you want to improve your finances there are better books, e.g. Set For Life by Scott Trench, if you want to learn more about investing in stocks, there is Simple Path to Wealth by J L Collins and if you want to actually learn about real estate, check out books from the bigger pockets store: you can find books there from beginner to advanced. I have no affiliation with bigger pockets, they are just a fantastic resource I keep recommending, because I personally benefited a lot from it.

I would also recommend you to listen to countless free podcasts and join facebook groups, meetups and forums. And a shameless plug, if you are still interested in investing in real estate and want to analyze some real estate deals, you can try the free app I've been developing:


  1. This comment has been removed by the author.

  2. To sell your home, you should seek the advice of experienced real estate agents. Because you will be represented by a real estate agent throughout the process. He'll arrange up meetings with prospective consumers and aid you in selling yourself as rapidly as possible. He'll make certain that you obtain the greatest money possible for your home.


Post a Comment

Popular posts from this blog

DIY index like portfolio, stock investment alternative to index ETFs that is better tax-wise

There is no doubt that stocks can be a great investment. Compared to other asset classes they are pretty easy to acquire, there is no need for tens of thousands of euros for a downpayment, they don't require debt and are very passive. They give us an opportunity to be invested in businesses without having to create those businesses. Last ten years were great for the stock market, even the coronavirus crisis didn’t depress the market for long. This doesn’t mean that the great returns will continue forever, but still the long term outlook for the overall market is great (long term stocks tend to go up as economies grow) especially if we look globally. The problem is that while picking the individual stocks, you might not be able to capture the overall market trend. You might pick the stocks wrong and the price might drop and never recover, or the company simply gets bankrupt. You might pick up a great company, buy it cheap (below intrinsic value), but still not earn money on it for m

What is net worth and how to track it?

I started tracking my net worth at the end of 2018 and since then I updated it about 28 times. It has been very useful to me and in this post I would like to encourage to start doing it too. What is net worth? Net worth can be defined as your assets minus liabilities. Here are some examples of assets: cash stocks house expensive items, e.g. a car, a horse, a boat debts other people have to you And now some examples of liabilities: car loan student debt mortgage Net worth shows your overall financial picture and the changes in the net worth show you if you are on the right track. For example you could see that you accumulating wealth or getting deeper in debt. Why track it? If you start measuring something regularly, you will  instinctively try to make that number go up. You might end up thinking twice before blowing money on an impulsive purchase or tweaking your budgets so you can save and invest more. And since to track your net worth you need to log into all of your

What are the sources of returns in real estate investing?

Real estate investments in Ireland need significant capital. In general you can get a loan with a 20% down payment (or 10% in certain cases) when buying a property for yourself to live in. Investment property loans (Buy To Let) start with 30% down payments. It’s a big deal! Before you invest, you should check if it’s worth it. You will be locking down a lot of your capital. You could invest it in other ways, for example in a different real estate deal, equities and so on. Let’s start with considering how you make money via real estate investment. I see three primary ways: Income: cashflow + mortgage paydown Appreciation (natural and forced) Inflation reducing the value of outstanding debt Income: cashflow + mortgage paydown The first one is pretty obvious! If you rent the property it should bring you some income. I divide the income into two parts, cashflow and mortgage paydown. Monthly cashflow is the money you are left with after all the other expenses, taxes and mortgage a