Rich Dad Poor Dad by Robert Kiyosaki

The poor and the middle class work for money. The rich have money work for them.  -- Rich Dad Poor Dad 

My good friends Jonathan and Cibie recommended that I read this book and I can't thank them enough for the recommendation.  This book presents the advice and wisdom from two Dads: one rich (whose views the author adopts) and one poor (his biological father).  This book could also be a story about Warren (me) and Adam (I changed his name to protect his identity).  Adam is a close family friend who is about 10 years older but grew up in the same city.   In this analogy I would be the poor Dad -- highly educated but trapped working for money.  Adam would be the rich Dad -- less educated but reaping the benefits of money working for him.

I work very hard for my salary from a large company in a very specialized role, which inadvertently puts me in a precarious situation -- during a recession or a decline in business I could be laid-off, and if the competition is not hiring I would be out of work and not making money for a long period of time.  Adam and the Rich Dad work hard, but for themselves and rely on their business intelligence to find and make deals that add to their net worth.  During a recession or a decline in business, they too will feel a pinch, but they have general business knowledge and the ability to pivot into different business ventures.  Both Adam and the Rich Dad protect against business cycles by entering business ventures that are fairly recession proof such as rental income from tenants.  In Adam's case, he owns properties close to major universities which he then rents to university students.  Adam expanded his Empire from those student houses to owning commercial real estate which he rents to businesses (restaurants, bars, etc...).  One property in particular has a monthly rent of over $10K.  So Adam's revenue from one property for one year is greater than my entire yearly salary, and he didn't have to go to any meetings at 7:30am!  I have long been a fan and admirer of Adam's business acumen and his ability to spot deals.  This book, Rich Dad Poor Dad, I think codifies Adam's business perspective and requires a shift in mind frame from a "working for money" to a "let money work for me".

Here are my highlights, notes and additional thoughts from the book (in sequential order of appearance):

1. It is not about how much you make but rather how much you keep.  For most people, expenses rise at about the same rate as their income so they get rich or poor at the same rate over time.  I have some friends who work in NYC who earn more money than I do but are accumulating wealth at a slower rate due to increase expenses.  
2. “There is a difference between being poor and being broke. Broke is temporary. Poor is eternal.”  Some people are born broke but that is corrected as they amass their fortune over time.  Some people are born poor but remain poor all their life.  
3. “If you want to learn to work for money, then stay in school. That is a great place to learn to do that."  Schools generally prepare students to be employees and not employers.  The end goal of education for many people is to get a "good job".  So their ultimate goal is to become educated to help make someone else wealthy.  
4. "A job is only a short-term solution to a long-term problem."  The long term problem is the requirement for money or capital.  
5. "Rule #1: You must know the difference between an asset and a liability, and buy assets.... An asset is something that puts money in my pocket. A liability is something that takes money out of my pocket. This is really all you need to know."  This rule is astonishingly simple yet is overlooked by the majority of people.  I think your personal home is a liability since it takes money out of your pocket in the form of taxes, maintenance and utilities.  The only way people made money on their homes is through appreciation.  However, I think those days of consistent home appreciation are gone (actually the fact that it existed for one generation is something of an anomaly).  
6. “An intelligent person hires people who are more intelligent than he is.” 
7. "An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first."  This trend is something I see all the time: retail therapy and big splurges.  People paying premium for luxury brands like Louis Vuitton and Armani.  I also have to admit that I fell into this trap early in my career: right out of university a bought the most expensive car I could afford (Subaru WRX) and it destroyed my finances until I finally sold it.  
8. "[Most people] spend their lives minding someone else’s business and making that person rich. To become financially secure, a person needs to mind their own business."  For example, I work to make the shareholders of my company wealthy and that is my career.  Conversely, my business to-date has been taking what little personal profit (earnings - expenses) and investing it into securities.  We are currently in the midst of a great bull run and a lot of the stocks are becoming priced way beyond their financials and future prospects warrant.  Thus, I know this bull market will end with a correction (as all bull markets do) but I am utterly uncertain when this will happen.  
9. "A corporation earns, spends everything it can, and is taxed on anything that is left. It’s one of the biggest legal tax loopholes that the rich use. They’re easy to set up and are not expensive if you own investments that are producing good cashflow."  The biggest difference between a corporation and a person is that a corporation is taxed on profit while people are taxed on revenue.  The author recommends reading Garret Sutton's book on corporations.  The author also described the utility of a 1031 tax-deferred exchange and setting up REITs.  The author uses a Nevada corporation to channel income from assets.  The other nice thing about a corporation, like an LLC, is that it limits liability. 
10. "Once we leave school, most of us know that it is not so much a matter of college degrees or good grades that count. In the real world outside of academics, something more than just grades is required. I have heard it called many things; guts, chutzpah, balls, audacity, bravado, cunning, daring, tenacity, and brilliance."  I think these are adjectives that are used after a venture proves to be successful but at the beginning of the venture with the outcome unknown I think the more common adjectives would be: foolish, unwise, risky, etc...  Starting a company or a new venture will always seem unwise or foolish to someone but as the old saying goes "Fortune favors the bold" and this leads nicely to the next point. 
11. "Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success. "  I will relay a story I read from Augustine's Laws: "...dropped out of grade school. Ran a country store. Went broke. Took 15 years to pay off his bills. Took a wife. Unhappy marriage. Ran for house. Lost twice. Ran for Senate. Lost twice. Delivered a speech that became a classic. Audience indifferent. Attacked daily by the press and despised by half the country. He signed his name A. Lincoln."  Failure is not in itself bad as long as you learn.  More telling than the actual failure is what happens afterward.  
12. "When it comes to money, the only skill most people know is to work hard. "  I am guilty of this thinking.  My own Father tells me all the time to work hard and that success and money will come.  I too think it is important to work hard and to have a good work ethic, but more importantly is to work intelligently.  Defaulting to working hard can cause people to overlook more efficient ways of accomplishing tasks.
13. "Rich dad explained to me that the hardest part of running a company is managing people."  I am not sure where I heard this story but this is what I remember: "How can you tell who is in charge?  Easy, he is the guy in the front with an arrow in his back."  Being a first level manager is a precarious position as you will have arrows come from both front (customers and upper level managers) and from behind (direct report employees who covet the position).  
14. "Listening is more important than talking."  This one is pretty self-explanatory.  Here is how I have thought of this: if I am talking, I am not listening; if I am not listening, I am not learning; If I am not learning, what is the point?  
15. "The three most important management skills necessary to start your own business are management of: 1. Cash flow 2. People 3. Personal time "
16. "Most sellers ask too much. It is rare that a seller asks a price that is less than something is worth."  This advice is justification with opening with a low bid. 
17. "Consumers will always be poor. When the supermarket has a sale, say on toilet paper, the consumer runs in and stocks up. But when the housing or stock market has a sale, most often called a crash or correction, the same consumer often runs away from it. "

This book was another Seldon moment in my life.  I have decided to return to my previous Spartan lifestyle and start building my own little empire.  This past week I had a 30 minute phone call with Adam and he gave me 5 years worth of advice.