Danger of Rich Dad Poor Dad
This is not to say that I disagree with what the author of Rich Dad Poor Dad says. In fact, I totally agree with all points mentioned by Robert Kiyosaki in his best selling book on personal finance.
He does a very good job of introducing us to some important basic ideas in personal finance – 1. the idea that rich people don’t work for money, 2. the fact that having $5000 monthly income from assets is far better and stable than $5000 from a job as an employee. 3. Buy assets but not liabilities. Honestly speaking, without his bestseller book, most people will continue in working until they physically cannot work and not realize the need to invest for cashflow.
The following are some of the pitfalls that arises as a result of reading his book,
1. The idea that S and E quadrants are not good as B and I quadrants
His first book implied negativity towards professional and self-employed, and his later books specifically mentioned negativity towards these two quadrants of income generation.
Giving reasons ranging from a high risk due to income from specialty, that if something happens to you, high income will be gone. That it is better to have assets generating that income.
Well, I agree with his points, but in order to acquire assets generating $5000 per month as early as possible, it is more possible if you were a medical doctor making 5 figures per month. Good assets (stocks or physical properties) that provide substantial positive cashflow per month don’t drop from the sky.
Or that if you were a toilet cleaner, you most probably need to save and scrimp for 50 years before finally can buy enough assets to generate $5000 per month. Who knows? After saving and scrimping for 20 years, some freak car accidents means that your relatives will get to enjoy your little wealth or that a major disease like cancer wipe out all your entire savings.
No one says that you cannot be both E and I quadrants at the same time, you need high income in order to have substantial capital to invest without sacrificing current consumption.
If you owns a small business that creates $10 000 in profits per month, I believe that one has more money to invest at the end of the month. You don’t really need a B quadrant business if don’t have that opportunity and fortune.
2. Successful business founders like Bill Gates and Michael Dell are college dropouts, so if you want to be rich and happy, then don’t go to school.
I totally agree that if God were to appears and ask me whether I want a college degree or a US$10 millions fortune, I were definitely choose the latter and I believe that most people decisions are same as me.
The equation is not that Bill Gates is not degree holder, so you can be rich as him if you are not also.
While it is true that there are many wealthy people who never completes school or have high educational qualifications, there is also equally number of multi-millionaires to billionaires with college degree like Warren Buffet and Google founders.
Schools are where long lasting friendships are made, not in workplace or business environment; these are things far more valuable than any economic considerations.
You don’t need formal education to be a successful business owner but you do need good paper qualifications to earn higher income as an employee.
You don’t need formal education to be a successful business owner but you do need how to think creatively, critically and acquiring essential knowledge for your business on your own.
Don’t forget, whether you can business multi-millionaires is something that may or may not happen in future, a degree is a good backup just in case you didn’t make it in entrepreneurship.
3. Over-emphasing the benefits of network marketing
While I don’t dispute the fact that in business of network marketing may be good for some people, but I definitely choose to become a medical doctor rather than subscribing to some hyped up success stories common in network marketing.
Of course people at the top of a network marketing company make millions and want to hype up that it is possible if you believe in it. It is not hard to see from the picture of cashflows, money don’t drop from sky, network marketers need to sell something in order to make money. When success stories of people at top are told, coupled with standard motivational talks, all downlines will be motivated to sell products and/or recruit people to sell products, of course, the company can make millions.
But when everyone around you sells the same products, your chances of make some money will be reduced but no matter which person sells the products, the network company gains.
But does network marketing really suitable for everyone? What if the products is not really that good, overpriced, or simply don’t have such a need for it? Do you really want to force your friends and relatives to buy?
How to make a million dollars then?
There is no single answer to above golden question.
4. Your home is a liability, not an asset.
The answer is it depends.
Let us assume a hypoethical situation.
Mr Poor is an odd job laborer, working in a high risk environment but is fortunately adequately covered by life insurance which totally covers all mortgages for his primary residence should something happens to him tomorrow. Then some accidents really happen to him and he really die, leaving behind his wife and schooling kids. His life insurance paid off all mortgages and wife and kids can continue living in current house.
What is going to happen if he believes that his house is a liability and instead of owning a house, ends up renting instead. While it is true that he needs to pay for mortgages every month from his meager pay, he also needs to pay rent if did not own a house.
The fact is that a buy/rent decision on housing for primary residence depends on various factors and not simply asset and liability point of view.
Even from a cashflow point of view, a house is still constitute asset and liability components.
Related posts:
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
Teach this triple truth to all: A generous heart, kind speech, and a life of service and compassion are the things which renew humanity.
For this triple truth,
I would say morality is what we want the world to be but economics is what the world is like.
The secret of health for both mind and body is not to mourn for the past, nor to worry about the future, but to live the present moment wisely and earnestly.
You yourself, as much as anybody in the entire universe, deserve your love and affection.