Rich Dad and Poor Dad

Rich Dad believes generating wealth is in his hands. He is willing to learn ways to earn his wealth and to control his expenses.

Poor Dad blames his external circumstances for keeping him poor. He always expects his boss/company to pay him more, his country and law-makers to be more considerate of him. And he firmly belives all his expenses are inevitable for a person in his shoes.

Rich dad is aware of what is compound interest and how it plays an important role in his financial life. He knows his savings, loans and inflation grow at a compounded rate.

Poor Dad learnt about compound interest in 8th grade at school and long since forgotten about it. He hears terms like inflation-rate, loan-interest-rate or CAGR, but is unable to correlate to P(1+r)ⁿ that he learnt in school.

Rich dad realizes that his money works best, when given more time and thus invests early. He knows that n sits in the power of the compound interest formula and is equally important if not more, than the rate of interest.

Poor dad doesn’t understand significance of time, and always chases only the interest-rate, hoping this will multiply his money. He keeps liquidating his investments in short periods.

Rich dad knows that he must be aware of personal finance and spends time to understand each concept and takes action after learning these.

Poor dad believes personal finance is like walking and just happens for everybody.

Rich dad wont enter a financial product, unless he fully understands how it works. He would be circumspect, when a product claims to offer a better returns than a simple bank’s deposit. He would like to know how the money multiplies in an instrument, by using his common sense.

Poor dad just feels if everyone around him is going by a product, then the product is the nice thing to put his money in.

Rich dad knows that ultimately he is responsible for his decisions. He listens to media, friends on how each product has performed in the past and gets recommendations. But he does his due diligence and knows he is the only person responsible for his choice of investments.

Poor dad is aghast at how his truest friends could have made him invest in the lousy stocks/mutual-funds. He is convinced that the world no longer has true, honest people.

Rich dad is fairly familiar with a tool of his choice - an internet site, a spreadsheet program, a calcuator which he can make use of to arrive at the returns rate of any deal. He regularly uses this to check for himself on the numbers published/heard from various sources. His regularity in checking has given him an off-hand comfort that at 8%, money doubles in 9 years and at 9% money doubles in 8 years. He knows however, intuition is always dangerous and he swallows only after verifying in his tool.

Poor dad has no clue on how to check the returns of a deal. He just belives the number published in papers. He hopes the auditors whoever publish these numbers know what they are doing. He thinks his uncle made a stunning profit by selling his house for 2C, which he purchased for 1L. He is oblivious of the fact that this was purchased 60 years back, and that this significantly matters in deciding the worth of the deal.

Rich dad knows what is a asset - An asset is something which puts/can put money in his pocket, at a rate greater than his purchase value and inflation.

Poor dad confuses between asset and liability. He believes anything he has paid money to acquire is his asset. He is unaware, when he buys any product, of the recurring expenses that would be involved to keep it and its depreciation.

Rich dad believes that, while he gets his salary, it would be always good to build assets, which will supplement his regular income.

Poor dad doesn’t realize that one needs to build assets. He thinks his salary is enough for his working life and the statutory funds like employee provident fund, gratuity is enough for his retired life.

Rich dad knows that there are many events in life, that need money. And a good deal of them are completely well predictable events both on their time of occurence and amount required for the event. He calcuates their estimated values to a reasonable accuracy using scientific methods and plans to meet those expenses from a early age, by investing towards them.

Poor dad just lives on his salary every month, and is stumped by events in life, that seem to suck all his money abruptly without notice. He for instance, squarely blames the government and greedy college administrators for making education of his kid so astronomically high and impossible for poor middle-class people like him.

Rich dad knows which things are dear to him and in which priority. For example, he places emergency fund, retirement corpus, kids education, corpus to start his cherished dream-project, as his foremost financial priorities. Things like a house, car come next. When he comes across a new cool gadget, he realizes that instinctive buying will jeopardize his important goals and stays away. Interestingly, this knowledge empowers him and he is no longer afflicted by the craving to own cool things.

Poor dad has no clue on his priorities. He is unaware that one has to think about and explicity set priorities. He gets carried away by the new stunning new phone that gets released and the pouring reviews on how this phone is worth its money. He concludes that buying a gadget is perfectly okay as its just one-third of his take-home salary! Interestingly, poor dad always has this unsatiated craving after every gadget wears off in its novelty.

Rich dad doesn’t confuse insurance and investment. He picks a term insurance and arrives at the insurance amount required to protect his dear ones in a mathematical manner.

Poor dad just belives insuring without getting his premiums back is completely stupid. He picks an endowment and a unit-linked plan from a very respected and popular insurance company, which he is sure, wont cheat on poor people’s money. He ofcourse can’t afford to insure to the real requirement and just purchases a plan that can fit his income and current expenses and thinks he has did his best on this front.

Rich dad knows he has to insure his health and unforseen disabilities. No one can control fate. He also knows that insurance companies shy away from issuing insurances as one gets older and acquires general age-related issues. So, he starts on a good inflation adjusted health insurance plan right from his early age. He has a group insurance from his employer too which he always uses first but also continues his personal insurance.

Poor dad believes he is a disciplined driver and disabilities insurance is not for people like him. He is already covered for health by his employer and feels an extra insurance is just for paranoics.

Rich dad’s habit of carefully planning his finances, gently rubs on other aspects of his life too. He spends a lot of personal moments contemplating on what makes him happy from within. He pursues his hobbies and knows anything in life needs time and money. He plans for augmenting his hobby with right gadgets. He gradually moves on from a amatuer to a serious hobbyist. People around him are awed. But that is just secondary. His biggest pleasure is his heart soaring at doing what it loves to do.

Poor dad, just looks around at what is currently hip. He dabbles at a camera, at a skating shoe, with a tennis racket. He feels, getting the fun of all this is just a step away. But is confounded at how idiotic things are after he tries them and wonder how anyone could consider this fun. He is oblivious of the piling stuff in his home and the dent they are making in his purse. He doesn’t get rid of them too. He is going to try them someday, when he gets "time".

Rich dad belives that one has to actively know about taxes and relevant law and a sound first hand knowledge of this is central to his wealth building. This is more important than the trignometry or calculus he leart at school and college. Although not as complex, he knows he has to invest time and effort in knowing this, as they are quite vast and unfortunately there is no simple text book that explains them accurately from scratch in plain English.

Poor dad prides himself on being one of the first in his class to understand how to read clark’s logarithm tables and do calcuations in his science experiment class. He has helped his fellow mates on the eve of exams in teaching boyle’s law, avagadro’s number. But learning law and taxes - come-on, they are for lawyers and charted accountants. He shrugs it off.

Rich dad is aware of the choices one has on investing, ranging from fixed deposits, recurring deposits, physical gold, electronic gold, bonds, debentures, Fixed Maturity plans, debt-based-mutual funds, equity-mutual funds, equity, derivatives, real-estate, forex and many more. He is able to distinguish between debt and equity. He knows about the tax implications of each product. He knows the risk invovled with each product. While he wouldn’t invest immediately, he is open to listen to new products on how they work.

Poor dad thinks fixed deposits, buying a house and plot are all there is to investing. He is carried away by the beautifully articulated sales person on a new multi-level marketing scheme and is convinced this is the mantra of the rich, and he missed being rich till date because, he was not in this.

Rich dad believes in the common sense of economics - "In any economy, the lending interest rate will be higher than the savings rate". Thus he always stays away from loans, unless he is completely convinced that the loan is made cheap by factors outside of the loan like tax benefits. He knows getting into a loan is just detrimental to his financial well-being.

Poor dad just loves sellers who offer EMI schedules for their products. He thanks them for making things "affordable" for people like him. He is happy that the seller has the option of extending the time period and reduce the per month EMI. He believes, as long as the EMI amount is within his current take-home minus current expenses, he is all set for the loan.

Rich dad understands retirement - Its the time point in his life, where he has built enough assets that would take care of him and his dependants by themselves for the rest of life for his chosen life-style. He plans for it and retires quite early in life. He then completely pursues his heart’s call beyond this point. He has already identified this call in his earning-period and has been already building/spending time on it. Just that there is no longer the compulsion to stay at his regular work any longer.

Poor dad thinks retirement is simply the age stipulated by law-makers till which one person works as a regular employee in an organization. He hopes working till this age, will help him live a king-sized life afterwards and that he can pursue all the joys he is missing in his work-life post retirement. But he is petrified at reality once he approaches this age. He is mortified at how a honest, hard-worker like him is being treated so unjustly by life and the society.