7 Unspoken Truths From Rich Dad’s “Retire Young Retire Rich”

Last updated on January 16, 2024

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Retire Young Retire Rich Lessons

1️⃣ Learn to Use the Power of Leverage

Ever wondered how to turn a little into a lot? Robert Kiyosaki pondered this question in the 1970s, and two decades later, he was on his way to early retirement as a millionaire.

The secret to his success? Leverage – the art of achieving more with less.

Picture a lever, a simple tool utilizing a beam and pivot to move heavy objects with minimal force. But leverage isn’t confined to lifting; it’s a universal principle governing the world.

In a nutshell, the key message is: Leverage is power.

Consider the animal kingdom – we aren’t as swift as cheetahs, as robust as bears, or equipped to fly like birds or swim like fish.

Yet, we dominate the Earth. That’s the leverage of our greatest gift – the mind. Humans innovate, creating tools like levers for heavy lifting or vehicles for swift travel across various terrains.

The history of innovation showcases our journey of gaining leverage over the natural world. Millennia ago, sea merchants harnessed wind power using woven flax, propelling boats efficiently.

This simple yet powerful innovation led to the prosperity of those who embraced it, building powerful empires.

Fast forward to today – the internet serves as a modern-day lever. Entrepreneurs who recognized its potential early on are among the wealthiest individuals.

These insights aren’t solely about technology; they’re about concepts and strategies that provide financial leverage, helping you achieve more with your money.

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2️⃣ Understand the Risk/Reward Ratio

How you perceive the world influences your actions – your reality is shaped within your own mind, giving you a unique perspective.

Consider the concept of risk. The perceived risk often determines your engagement in a particular behavior, like investing, which is commonly viewed as risky.

Some avoid it altogether, believing it’s best not to play with fire to prevent getting burned.

Now, think about crossing the road – it’s risky too. But if you fixate on that risk, fear could paralyze you, making navigating city streets impossible.

Rich Dad, however, finds a more constructive approach in the risk-reward ratio.

In essence, the key message is: The risk-reward ratio helps you put risk into perspective.

While statistics show that nine out of ten businesses fail, entrepreneurs continue to launch new ventures. It’s not just about hubris; each entrepreneur possesses a unique risk perspective.

Relying on the risk-reward ratio allows them to understand the risk they are willing to take.

Consider a New York-based day trader, a close friend of Kiyosaki. His strategy revolves around this ratio – never risking more than a tenth of his assets in the market.

For instance, if he has $200,000, he allocates $20,000 for trading – a manageable loss in case things go south.

Here’s the interesting part: With odds of making money on one out of every twenty trades, he risks only one twentieth of his trading fund per transaction, which amounts to $1,000.

Even if he loses 19 times (a rare scenario), the final successful trade compensates for the losses.

Since market moves usually yield double or more on his original $20,000 investment, the reward significantly outweighs the risk.

Understanding and applying the risk-reward ratio can be a game-changer in managing and evaluating risks in various aspects of life.

3️⃣ Learn the Debt and Wealth Ratios

Blaming tools is for the poor worker, but using poor tools leads to poor results. This Rich Dad wisdom stuck with Kiyosaki, highlighting the importance of concepts as tools for the brain.

In the quest for financial leverage, understanding your positive debt, available assets, and income is crucial.

The key message is: Your debt and wealth ratios can help you track your financial health over time.

Starting with the debt-to-equity ratio, it assesses the balance between positive debt and available assets.

For example, if you have $100,000 in positive debts and $20,000 in equities, your debt-to-equity ratio is five.

While this figure may not scream insights immediately, it serves as a yardstick to measure your financial health.

A sudden increase, like going from five to ten, signals a potential problem – your debt may have surged while equity stayed constant or vice versa. T

his shift is an alarm prompting a reassessment of your finances.

Enter the wealth ratio, a tool to measure passive and portfolio income against expenses. By dividing your indirect income by total expenses, you can gauge financial flexibility.

If, for instance, your income from stocks, shares, or rentals is $800 monthly, covering $4,000 in expenses, your wealth ratio is 0.2.

This indicates that your non-job-related income covers 20 percent of your expenses.

This ratio serves as a guide on your path to financial freedom. A ratio of one means breaking even, while anything above one signifies making money after covering all expenses.

As this ratio climbs, you get closer to making bold financial moves, like early retirement or pursuing a fulfilling job that pays less.

4️⃣ Adopt Simple and Good Habits

In the vast sea of books on getting rich, distinguishing effective advice from the rest can be challenging.

Rich Dad proposes a more practical approach: skip the complex models and strategies, and focus on adopting simple, good habits.

The key message here is: Simple, good habits go a long way.

Let’s explore two habits credited by Kiyosaki for transforming fortunes. First is the habit of learning, a fundamental practice in the dynamic information age we live in.

Unlike the past, where individuals applied a set number of skills throughout their working lives, today’s reality demands continuous learning.

Change is constant, rendering yesterday’s strategies obsolete.

Staying ahead involves remaining curious, whether through reading, attending seminars, or engaging with people from various industries.

Learning something new daily positions you to see opportunities before others do.

Investing in yourself through knowledge acquisition not only broadens your perspective but also enhances your ability to identify and seize opportunities.

As you explore these opportunities, you might find the need to borrow money, leading us to the second habit: rely on a good bookkeeper.

Securing loans often hinges on your financial records. Few will trust you with their money if you can’t demonstrate effective management of your own.

A bookkeeper plays a crucial role in maintaining organized records of your income, expenses, assets, and liabilities.

This professional documentation not only boosts your financial credibility but also increases your financial leverage, opening doors to resources like positive debt.

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5️⃣ Use Debt to Buy Assets

Debt as a form of leverage for wealth? It might seem counterintuitive, given the common goal of avoiding debt.

However, when used wisely, debt can be a powerful tool to increase wealth, depending on whether it’s good or bad debt.

In essence, the key message is: Using debt to buy assets can give you an infinite return.

Distinguishing between good and bad debt is crucial. Good debt generates income, while bad debt erodes existing income. In the former, debt works for you; in the latter, you work for it.

While many borrow money for liabilities that cost them more (like vacations or cars), debt can also be utilized to acquire assets that generate income.

Real estate is a prime example. Kiyosaki’s first real estate deal in 1974 illustrates this principle.

Broke at the time, Kiyosaki borrowed $16,000 from the bank and used a $2,000 credit card down payment to purchase an $18,000 beachfront condo in Hawaii.

Renting out the property covered not only the loan and credit card repayments but also generated a monthly income of $25 (equivalent to $130 today).

Here’s the essence: Kiyosaki hadn’t spent any of his own money, yet he was generating income after covering all expenses, including the loan.

In financial terms, this is an infinite return – essentially, free money.

The lesson is clear: borrowing wisely allows you to use other people’s money to increase your wealth.

This often involves investing in income-generating real estate. The next key idea will delve deeper into this topic.

6️⃣ Finding the Right Asset Takes Time

Discovering a great real estate deal boils down to training yourself to notice what others overlook.

It might sound challenging, but it’s akin to finding the best holiday deal, appliance, or pair of sneakers – you need to explore and compare before making a decision.

The key message here is: If you want to find the right property, you have to look at a lot of duds.

Rich Dad recommends the 100:10:3:1 method for evaluating potential investments.

This involves examining one hundred properties, making offers on ten, having three sellers agree to your offer, and finally, purchasing one property.

This method serves a dual purpose. Not only does it teach you about the market dynamics, but it also acts as a safeguard against costly mistakes.

Kiyosaki shares a cautionary tale about a lawyer friend who, without using this method, purchased a beachfront condo near San Diego after looking at only two units in the same complex.

Two years later, she was losing over $450 monthly due to increased maintenance fees and lower-than-expected rent. Unable to sell at a profit, she found herself in a financial bind.

The moral, according to Rich Dad: You have to kiss a lot of frogs before finding a handsome prince.

Many investors skip the crucial step of comparing potential investments, acting on impulse, hot tips, or hearsay.

Kiyosaki’s friend’s unfortunate experience serves as a stark reminder – those who avoid “kissing frogs” often end up settling for an unhappy investment.

7️⃣ Problems Can Be Opportunities Too

Just like every fisherman has a tale of the “one that got away,” real estate investors have stories of discovering the perfect property that others overlooked.

For Robert Kiyosaki and his wife, Kim, it was a small mountain cabin in Pennsylvania during a vacation.

The key message here is: Problems can be opportunities.

While applying the 100:10:3:1 method even during holidays, the Kiyosakis stumbled upon a run-down cabin with 15 acres of land listed at an unusually low $43,000.

The catch?

The property’s well didn’t produce enough water for full-time occupancy. Undeterred, they investigated and consulted a well expert.

The real issue wasn’t insufficient water but seasonal fluctuations.

The solution?

Installing 3,000-gallon holding tanks to store surplus water for leaner months. With this knowledge, they offered $24,000, which the owner, struggling to sell for years, accepted.

The Kiyosakis spent a mere $5,000 on the tanks after closing the deal.

A month post-installation, the cabin, now with a reliable water supply, was swiftly sold for $66,000 – a $37,000 profit.

This lesson ingrained in the Kiyosakis underscores the notion that with patience and creative thinking, properties with perceived problems can yield substantial returns.

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The overarching message in these insights revolves around the power of leverage in achieving financial success.

Entrepreneurs employ various forms of leverage, showcasing how it is a crucial factor in their money-making strategies.

The risk-reward ratio is highlighted as a cognitive tool, illuminating the genuine risk associated with an investment.

Entrepreneurs, like Robert Kiyosaki, leverage this concept to understand and navigate risks effectively.

Credit, often viewed negatively, is presented as a tool for wealth creation when used wisely.

Kiyosaki’s success story emphasizes the transformative potential of debt when spent on income-generating assets such as real estate.

In essence, these key ideas emphasize the importance of leveraging ideas, strategies, and resources to make informed financial decisions and pave the way for financial success.

Whether it’s understanding risk, utilizing credit, or turning problems into opportunities, the concept of leverage is central to the journey of successful entrepreneurs like Kiyosaki.

Retire Young Retire Rich Quotes

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May the God of hope fill you with all joy and peace as you trust in him, so that you may overflow with hope by the power of the Holy Spirit.

— Romans 15:13