BY Robert T. Kiyosaki
I had two dads - a rich one and a poor one. One dad was highly educated and intelligent; he had a Ph.D. and had completed four years of under-graduate work in less than two years. He then went to Stanford University, the University of Chicago, and Northwestern University to do his advanced studies. All on full, financial scholarships. My other dad never finished the eighth grade. Both men were successful in their careers, working hard all their lives. Both earned substantial incomes. Yet one dad struggled financially all his life and the other dad would become one of the richest men in Hawaii. One died leaving tens of millions of dollars to his family, charities, and his church. The other left a legacy of unpaid bills. Both men were strong, charismatic, and influential. Both men offered me advice, but they did not advise the same things.
Contrasting Points of View
Having two dads as advisors offered me the perspective of contrasting points of view: one of a rich man and one of a poor man. The problem was that my rich dad was not yet rich, and my poor dad not yet poor. Both were just starting out in their careers; both were struggling with money and families. But, regardless of those facts, both had very different points of view on the subject of money.
One dad would say, "The love of money is the root of all evil." The other, "The lack of money is the root of all evil." Having two dads - and loving them both - forced me to think about, and ultimately choose, a way of thinking for myself.
I had to think about each dad's advice and, in doing so, gained valuable insights into the power and effect of one's thoughts on one's life. For example: My poor dad had a habit of saying, "I can't afford it." My rich dad forbade those words to be used. He insisted that I say, "How can I afford it?" One is a statement, the other a question. One lets you off the hook; the other forces you to think. My rich dad would explain that by automatically saying the words "I can't afford it" your brain stops working. By asking the question "How can I afford it?" your brain is put to work.
Exercise Your Mind
My rich dad did not mean 'buy everything you wanted.' He was, though, fanatical about exercising your mind – the most powerful computer in the world. My rich dad said: "My brain gets stronger every day because I exercise it. The stronger it gets, the more money I can make." He believed that automatically saying "I can't afford it" was a sign of mental laziness.
Although both dads worked hard, I noticed that my Poor Dad had a habit of putting his brain to sleep when it came to money matters. My Rich Dad, on the other hand, made a habit of exercising his brain. The long-term result was that one dad grew stronger financially and the other grew weaker.
Our Thoughts Shape Our Lives
Being a product of two strong dads allowed me the luxury of observing the effects that different thoughts have on one's life. I noticed that people really do shape their lives through their thoughts. The power of our thoughts may never be measured or appreciated, but it became obvious to me as a young boy that there was value and power in being aware of my thoughts and how I expressed myself. I noticed that my poor dad was poor not because of the amount of money he earned – which was significant – but because of his thoughts and actions. As a young boy having two fathers I became acutely aware of being careful in deciding which thoughts I chose to adopt as my own and to whom should I listen – my rich dad or my poor dad?
At the age of nine I decided to listen to and learn from my rich dad about money. In doing so, I chose not to listen to my poor dad – my real dad – even though he was the one with all the college degrees.
Dad Differences
One of my dads is a multi-millionaire. The other is a poor man. Why? Very simply, it comes down to their respective attitudes toward money and life. Take a look at the differences... and think about where you fit...
Pouring a Foundation of Wealth
Returning to the dingy gray officers’ quarters on base that night was very difficult. They had been fine when I left earlier that day, but after spending the afternoon in Mike’s new home, the officers’ quarters seemed cheap, old, and tired. As expected, my three roommates were drinking beer and watching a baseball game on television. There were pizza boxes and beer cans everywhere. They did not say much as I passed through the shared living area. They just stared at the TV set. As I retired to my room and closed the door, I felt grateful that we all had private rooms. I had much to think about.
At 25 years of age, I finally realized things that I could not understand as a kid of 9, the age at which I first began working with rich dad. I realized that my rich dad had been working hard for years pouring a solid foundation of wealth. They had started on the poor side of town, living frugally, building businesses, buying real estate, and working on their plan. I now understood that rich dad’s plan was to become very wealthy. While Mike and I were in high school, rich dad had made his move by expanding to different islands of the Hawaiian chain, buying businesses and real estate. While Mike and I were in college, he made his big move and became one of the major private investors in businesses in Honolulu and parts of Waikiki. While I was flying for the Marine Corps in Vietnam, his foundation of wealth was set in place. It was a strong and firm foundation. Now he and his family were enjoying the fruits of their labor. Instead of living in the poorest of neighborhoods on an outer island, they lived in one of the wealthiest neighborhoods in Honolulu. They did not just look rich on the surface as many of the people in that neighborhood did. I knew that Mike and his dad were rich because they allowed me to review their audited financial statements. Not many people were given that privilege.
My real dad, on the other hand, had just lost his job. He had been climbing the ladder in the state government when he fell from grace from the political machine that ran the State of Hawaii. My dad lost everything he had worked to achieve when he ran against his boss for governor and lost. He had been blacklisted from state government and was trying to start over. He had no foundation of wealth. Although he was 52 and I was 25, we were in exactly the same financial position. We had no money. We both had a college education and we could both get another job, but when it came to real assets, we had nothing. That night, lying quietly on my bunk, I knew I had a rare opportunity to choose a direction for my life. I say rare because very few people have the luxury of comparing the life paths of two fathers and then choosing the path that was right for them. It was a choice I did not take lightly.
Investments of the Rich
Although many things ran through my mind that night, I was most intrigued by the idea that there were investments only for the rich, and then there were investments for everyone else. I remembered that when I was a kid working for rich dad, all he talked about was building his businesses. But now that he was rich, all he talked about was his investments . . . investments for the rich. That day over lunch, he had explained, “The only reason I built businesses was so I could invest in the investments of the rich. The only reason you build a business is so that your business can buy your assets. Without my businesses, I could not afford to invest in the investments of the rich.” Rich dad went on to stress the difference between an employee buying an investment and a business buying an investment. He said, “Most investments are too expensive when you purchase them as an employee. But they are much more affordable if my business buys them for me.” I did not know what he meant by that statement, but I knew this distinction was important. I was now curious and anxious to find out what the difference was. Rich dad had studied corporate and tax law and had found ways to make a lot of money using the laws to his advantage. I drifted off that night excited about calling rich dad in the morning and saying softly to myself, “investments of the rich.”
The Lessons Resume
I had spent many hours as a child sitting at a table in one of rich dad’s restaurants as rich dad discussed the affairs of his business. At these discussions, I would sit and sip my soda, while rich dad talked with his bankers, accountants, attorneys, stockbrokers, real estate brokers, financial planners, and insurance agents. It was the beginning of my business education. Between the ages of 9 and 18, I spent hours listening to these men and women solve intricate business problems. But those lessons around the table ended when I left for four years of college in New York, followed by five years of service with the Marine Corps. Now that my college education was complete and my military duty nearly over, I was ready to continue the lessons with rich dad.
When I called him the next day, he was ready to begin my lessons again. He had turned the businesses over to Mike and was now semiretired. He was looking for something to do rather than play golf all day. When I was young, I did not know which dad to listen to when it came to the
subject of money. Both were good, hard-working men. Both were strong and charismatic. Both said I should go to college and serve my country in the military.
But they did not say the same things about money or give the same advice about what to become when I grew up. Now I could compare the results of the career paths chosen by my rich dad and my poor dad. In CASHFLOW Quadrant, the book that follows Rich Dad Poor Dad, my poor dad advised me to “Go to school, get good grades, and then find a safe secure job with benefits.” He was recommending a career path in this direction: On the other hand, my rich dad said, “Learn to build businesses and invest through your businesses.” He was recommending a career path that looked like him.
The CASHFLOW Quadrant is about the core emotional differences and the technical difference among the people found in each of the quadrants. These core emotional and technical differences are important because they ultimately determine which quadrant a person tends to favor and operate from. For example, a person who needs job security will most likely seek the E quadrant. In the E quadrant are people from janitors to presidents of companies. A person who needs to do things on his or her own is often found in the S quadrant, the quadrant of the self-employed or small business. I also say that “S” stands for solo and smart, because this is where many of the professionals such as doctors, attorneys, accountants, and other technical consultants are found.
The CASHFLOW Quadrant explains a lot about the difference between the S quadrant—which is where most small-business owners operate—and the B quadrant—which is the quadrant where big businesses are found.
The Tax Laws Are Different
The tax laws are different for the different quadrants. What may be legal in one quadrant is illegal in another. These subtle differences make big differences when it comes to the subject of investing. When discussing the subject of investing, my rich dad was very careful to ask me from which quadrant I was planning to earn my money.
The Lessons Begin
While Mike was busy running their empire, rich dad and I were having lunch at a hotel on Waikiki Beach. The sun was warm, the ocean beautiful, the breeze light, and the setting as close to paradise as you can get. Rich dad was shocked to see me walk in wearing my uniform. He had never seen me in uniform before. He had only seen me as a kid, dressed in casual clothes such as shorts, jeans, and T-shirts. I guess he finally realized that I had grown up since leaving high school, and by now had seen a lot of the world and fought in a war. I had worn my uniform to the meeting because I was between flights and had to get back to the base to fly that evening. “So that is what you have been doing since leaving high school,” said rich dad. I nodded my head and said, “Four years at the military academy in New York, and four years in the Marine Corps. One more year to go.” “I am very proud of you,” said rich dad. “Thanks,” I replied. “But it will be nice to get out of a military uniform. It’s really tough being spit on or stared at, or called ‘baby-killers’ by all these hippies and people who are against the war. I just hope it ends soon for all of us.” “I’m just glad Mike did not have to go,” said rich dad. “He wanted to enlist but his poor health kept him out.” “He was fortunate,” I replied. “I lost enough friends to that war. I would have hated to have lost Mike too.” Rich dad nodded his head and asked, “So what are your plans once your military contract is up next year?” “Well, three of my friends have been offered jobs with the airlines as pilots. It’s tough getting hired right now but they say they can get me in through some contacts they have.” “So you’re thinking of flying with the airlines?” asked rich dad. I nodded slowly. “Well, that’s all I’ve been doing . . . thinking about it. The pay is OK, and benefits are good. And besides, my flight training has been pretty intense,” I said. “I’ve become a pretty good pilot after flying in combat. If I fly for a year with a small airline and get some multi-engine time, I will be ready for the
major carriers.” “So is that what you think you are going to do?” asked rich dad. “No,” I replied. “Not after what has happened to my dad and after having lunch at Mike’s new home. I lay awake for hours that night and I thought about what you said about investing. I realized that if I took a job with the airlines I might someday become an accredited investor. But I realized that I might never go beyond that level.” Rich dad sat in silence, nodding ever so slightly. “So what I said hit home,”
rich dad said in a low voice. “Very much so,” I replied. “I reflected on all the lessons you gave me as a kid. Now I am an adult and the lessons have a new meaning to me.” “And what did you remember?” asked rich dad. “I remember you taking away my 10 cents per hour and making me work for free,” I replied. “I remembered that lesson of not becoming addicted to a paycheck.” Rich dad laughed at himself and said, “That was a pretty tough lesson.” “Yes it was,” I replied. “But a great lesson. My dad was really angry with you. But now he is the one trying to live without a paycheck. The difference is he’s 52 and I was 9 when I got that lesson. After lunch at Mike’s, I vowed that I would not spend my life clinging to job security just because I needed a paycheck. That is why I doubt that I will seek a job with the airlines. And that is why I’m here having lunch with you. I want to review your lessons on how to have money work for me, so I don’t have to spend my life working for money. But this time, I want your lessons as an adult. Make the lessons harder and give me more detail.” “And what was my first lesson?” asked rich dad. “The rich don’t work for money,” I said promptly. “They know how to have money work for them.” A broad smile came over rich dad’s face. He knew that I had been listening to him all those years as a kid. “Very good,” he said. “And that is the basis of becoming an investor. All investors do is learn how to have their money work hard for them.” “And that is what I want to learn,” I said quietly. “I want to learn and maybe teach my dad what you know. He is in a very bad way right now, trying to start over again at the age of 52.” “I know,” said rich dad. “I know.” So on a sunny day, with surfers riding the beautiful waves of the deep blue ocean, my lessons on investing began. The lessons came in five phases, each phase taking me to a higher level of understanding… understanding the thought process of rich dad and his investment plan. The lessons began with preparing mentally and taking control of myself . . . because that is the only place that investing really takes place anyway. Investing ultimately begins and ends with taking control of yourself. The lessons on investment in Phase One of rich dad’s investment plan are all about the mental preparation it takes before actually beginning to invest. Lying in my bunk that night in 1973, in a dingy room on base, my mental preparation had begun. Mike was fortunate enough to have a father who had accumulated great wealth. I was not that fortunate. In many ways, he had a 50-year head start on me. I had yet to start. That night, I began my mental preparation by making a decision between job security as chosen by my poor dad, or pouring a foundation of real wealth as chosen by my rich dad. That is where the process of investing truly begins and where rich dad’s lessons on investing start. It starts with a very personal decision . . . a mental choice to be rich, poor, or middle class. It is an important decision, because whichever financial position in life you choose—be it rich, poor, or middle class—everything in your life then changes.
What Kind of World Do You See?
One of the most startling differences between my rich dad and poor dad was what kind of world they saw. My poor dad always saw a world of financial scarcity. That view was reflected when he said, “Do you think money grows on trees?” or “Do you think I’m made of money?” or “I can’t afford it.” When I spent time with my rich dad, I began to realize that he saw a completely different world. He could see a world of too much money. That view was reflected when he said, “Don’t worry about money. If we do the right things, there will always be plenty of money,” or “Don’t let not having money be an excuse for not getting what you want.”
In 1973, during one of rich dad’s lessons, he said, “There are only two kinds of money problems. One problem is not enough money. The other problem is too Much money. Which type of money problem do you want?” In my classes on investing, I spend a lot of time on this subject. Most people come from families where the money problem was not enough money. Since money is only an idea, if your idea is that there is not enough money, then that is what your reality will be. One of the advantages I had, coming from two families, was that I could see both types of problems . . . and rest assured, both are problems. My poor dad always had problems of not enough money and my rich dad always had problems of too much money.
Rich dad had a comment on that strange phenomenon. He said, “People who suddenly become rich—by things such as inheritance, a big jackpot from Las Vegas, or the lottery—suddenly become poor again because psychologically, all they know is a world of not enough money. So they lose all their suddenly found wealth and go back to repeating the only world of money they know: a world of not enough money.”
One of my personal struggles was shaking the idea that the world was a world of not enough money. From 1973 on, rich dad had me become very aware of my thoughts when it came to the subjects of money, working, and becoming rich. Rich dad truly believed that poor people remained poor simply because that was the only world they knew. Rich dad would say, “Whatever your reality is about money inside of you is the reality of money outside of you. You cannot change your outside reality until you first change your inside reality about money.”
Rich dad once outlined what he saw as some of the causes of scarcity as differences in peoples’ attitudes:
1. The more security your need, the more scarcity there is in your life.
2. The more competitive you are, the more scarcity in your life. Which is why people compete for jobs and promotions at work and compete for grades in school?
3. To gain more abundance a person needs more skills and needs to be more creative and cooperative. People who are creative, have good financial and business skills, and are cooperative often have lives of increasing financial abundance.
I could see these differences in attitudes between my two dads. My real dad always encouraged me to play it safe and seek security. My rich dad encouraged me to develop skills and be creative. During our discussions about scarcity rich dad would break out a coin and say, “When a person says ‘I can’t afford it,’ that person sees only one side of the coin. The moment you say ‘How can I afford it?,’ you begin to see the other side. The problem is, even when people see the other side, they see it with only their eyes. That is why poor people see rich people doing what rich people do on the surface but they fail to see what rich people are doing inside their minds. If you want to see the other side of the coin, you have to see what is going on inside a very rich person’s mind.” The second half of this book is about what goes on in a rich person’s mind.
Years later, when lottery winners began going broke I asked rich dad why this was happening. His reply was, “A person who suddenly comes into a lot of money and goes broke, goes broke because they still see only one side of the coin. In other words they handle the money in the same way they always did, which was the reason they were poor or struggled in the first place. They see only a world of not enough money. The safest thing that person can do is just put the money in the bank and live off the interest only. People who can see the other side of the coin would take that money and multiply it rapidly and safely. They can do that because they see the other side of the coin, the side of the coin where there is a world of too much money and they use their money to get to the other side faster while everyone else uses money to become poorer faster.”
In the late 1980’s after rich dad retired and turned his empire over to Mike, he called me in for a brief meeting. Before the meeting began he showed me a bank statement with $39 million dollars in cash in it. I gasped as he said, “And this is only in one bank. I am retired now because it is a full time job to keep taking this cash out of my banks and moving it into more productive investments. I repeat it is a full time job that becomes more challenging every year.”
As the meeting ended rich dad said, “I spent years training Mike to build the engine that produces this much money. Now that I am retired he is running the engine that I built. The reason I can retire with confidence is because Mike knows not only how to run the engine, he can fix it if it breaks. Most rich kids lose their parents’ money because although they grew up in extreme wealth, they never really learned how to build an engine or fix it after it is broken. In fact, too many rich kids are the very people who break the engine. They grew up on the rich side of the coin, but they never learned what it takes to get to that side. You have a chance, with my guidance, to make the transition and stay on the other side.”
A big part of taking control of me was taking control of my internal reality about money. I have had to constantly remind myself that there is a world of too much money, because in my heart and soul, I have often felt like a poor person. One of the exercises rich dad had me do whenever I felt the surge of panic in my heart and stomach, the panic that comes from the fear of not having enough money, was to simply say, “There are two kinds of money problems. One problem is not enough money and the other is too much money. Which one do I want?” I would ask this question mentally even though my core being was in a state of financial panic.
I am not one of these wishful-thinking people or a person who believes solely in the power of affirmation. I asked myself that question to combat my inherited point of view on money. Once my gut was calmed down, I would then ask my mind to begin finding solutions to whatever was financially challenging me at the time. Solutions could mean seeking new answers, finding new advisors, or attending a class on a subject I was weak on. The main purpose for combating my core panic was to allow me to calm down so I could move forward again. I have noticed that most people let their panic about money defeat them and dictate the terms and conditions of their lives. Hence, they remain terrified about risk and money. As I wrote in CASHFLOW Quadrant, people’s emotions often run their lives. Emotions such as fear and doubt lead to low self-esteem and a lack of self-confidence.
In the early 1990s, Donald Trump was nearly $1 billion in debt personally and $9 billion in debt corporately. An interviewer asked Trump if he was worried. Trump replied, “Worrying is a waste of time. Worrying gets in my way of working to solve these problems.” I have noticed that one of the main reasons people are not rich is that they worry too much about things that might never happen. Rich dad’s investment lesson #2 was to mentally choose to see both worlds . . . a world of not enough money and a world of too much money. Later, rich dad went into the importance of a financial plan. Rich dad strongly believed in having a financial plan for when you did not have enough money as well as a financial plan for when you will have too much money. He said, “If you do not have a plan for having too much money, then you will lose all your money and go back to the only plan you know, which is what 90% of the population knows: a world of not enough money.”
Security and Scarcity
Rich dad said, “The more a person seeks security the more scarcity they will have in their life. Security and scarcity go hand in hand. That is why people who seek job security or guarantees are often the people with less abundance in their life. One of the reasons the 90/10 rule of money holds true is because most people spend their lives seeking more security instead of seeking more financial skills. The more financial skills you have the more abundance you will have in your life.” It was these financial skills that gave rich dad the power to begin acquiring some of the most valuable real estate in Hawaii even though he had very little money. These same financial skills give people the power to take an opportunity and turn it into millions of dollars. Most people can see opportunities, they just cannot turn that opportunity into money and that is why they often seek even more security. Rich dad also said, “The more a person seeks security, the less they can see of the opportunities that abound. They see only one side of the coin and never see the other side. That is why the more they seek security the less opportunity they see on the flip side of the coin. As the great baseball player Yogi Bera once said, ‘Strike out just 7 out of 10 times and you’re in the Hall of Fame.’” In other words, if he came to bat one thousand times in his baseball career, and if he could strike out only 700 times, he would be in the Hall of Fame. After reading Yogi Bera’s quote, rich dad said, “Most people are so security conscious that they live their entire lives avoiding striking out just once.”
Mental Attitude Quiz
I came from a family that saw the world as a world of not enough money. My personal challenge was to repeatedly remind myself that another kind of world existed and that I needed to keep an open mind to see a world of both possibilities for me.
So the mental attitude questions are:
Can you see that two different worlds of money can exist? A world of not enough money and a world of too much money.
Yes___ No ____
If you currently live in a world of not enough money, are you willing to see the possibility of you living in a world of too much money?
Yes___ No _____
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