So, to continually improve myself, I picked up a now-classic book, Rich Dad, Poor Dad, by Robert T. Kiyosaki.
If you are too lazy to go through the whole book, you can read the summary online here. The few big ideas of the book are:
- Poor people work for money. The rich work for assets
- Tax is the biggest enemy of your wealth
- Rich people acquire assets, but the poor and middle class acquire liabilities that they think are assets. Assets will generate cash flow for you while you holidaying around, while liabilities take away your cash while you are working on it.
- Improve your financial literacy, for this is what the rich do.
Overall, I would like to say that this is a good book, But I’ve a few comments.
First, unlike US where you pay tax on stock gains and capital appreciation gain, here in Malaysia these are not taxed AFAIK, furthermore, there are very few tax loopholes you can wiggle around if you want to masquerade your non tax-deductible personal expenses as tax-deductible company expenses ( our government is not stupid), and even trying to do so is a tax-evading offense. Not sure about the US where the Robert Kiyosaki lives and wrote the book, but I can imagine that US IRS must have closed their loopholes after reading this book.
Second, a lot of assets actually come with risk and due diligence. Say, for example, real estate investment. The author gives an example of how his friend, upon his advice, purchased a hugely unvalued property and then promptly rented it out with handsome profits, even after minusing the cost for renovation. Maybe he can do that during his time, and at his place, but locally I think such opportunities are far and few in between now.
In Klang Valley, the real estate price double or triple for the past ten years; for a lot of condos, especially the high end ones, the rental yield is not even sufficient to cover the monthly installment. So after minusing the management fees, the monthly installment, the agent fees, and taking into account of the trouble to boot out the bad old tenants and find good new ones, and the waiting period in between, real estate “investment” is not attractive for an investor. The cash flow can easily go NEGATIVE thanks to the low rental yield.
Not to mention that the risk that you can pay 30% and then buy a flop, your cash is now all tied up!
I’m not saying that Robert’s advice is not sound, I’m just saying that it takes a lot of work, and you need to put in serious hours and energies to manage your assets, on top of your 40 hours work week, 10 hours commute time ( typical in Klang Valley), another 40 hours of baby time, your time for your wife ( hopefully it’s singular or else you will need to multiply your commitment).
You need to run your assets yourself like how you run a serious business, at least at the start, which means your time and energy will be taxed to the max during this period. Consider this is the price you pay before you are liberated from the shackles of financial burden, imposed by your government, your society and your job.
And, like business, your investment can fail, your assets might turn out to be liabilities. When that happens, these financial gurus will just declare you are misidentifying assets as liabilities from the start. They will not be very helpful at this point.
So I guess this is where financial literacy comes in. In fact after through the whole book I have an epiphany that sums up everything: financial literacy is nothing but running your cash flow/income as a business. Business takes work, takes risk, takes time, but yields tremendous return beyond what mere salaries can give you. Having the financial literacy gives you the knowledge and the courage and the correct mindset to start over if your business fails.
So I guess this is what Robert is trying to tell us. So I agree with this central idea, even though I can see that some of the advices are not directly applicable.
Disagree? Meet us at our next Kindle Fan gathering on 7/7 10am, let’s talk about it!