Robert Kiyosaki's Advice Can Make You Broke

I first read Rich Dad Poor Dad in 2013. I picked up the book in an airport while on a work trip. The funny thing is that just a couple of days prior I had resolved that I needed to put in more overtime hours at work so that I can increase my income. I started reading the book and finished it within 3 days. The book completely changed my thinking, and I’ve been on a different path since then.

I completely agree with Robert Kiyosaki’s advice, his mindset, and the principles that he recommends in the book. But I think that there is a danger in misapplication of those principles. That’s what I would like to talk about.

In a nutshell, Kiyosaki looks at the advice given to him by his real dad, his poor dad. He then shows that his friend’s dad, his rich dad, lived by and built wealth by doing the exact opposite of what his poor dad advised. Kiyosaki recommends that the reader also does the exact opposite to his poor dad in order to build wealth.

Here are the key advice points from his poor dad:

• Get an education
• Get a job
• Save money
• Get out of debt

I’m going to look at these point by point and I’d like to discuss how misapplication of the opposite advice can make you broke.

1. Get an education

The opposite of this advice would be: “Don’t get an education”. Kiyosaki is not actually saying that one should not get an education. He’s saying, “question traditional education”. There are two parts to this. On the one hand, traditional education forces you to have a mindset of self-reliance. Your success depends on you, on how hard you work, and on how disciplined you are. It doesn’t encourage collaboration. This is not good. In business, building a network and collaborating with other people in your network is absolutely key to your success. There are several reasons for this, but that’s for a different article.

On the other hand, traditional education could leave you with a lot of debt without much earning potential if you don’t choose well. Robert Kiyosaki’s poor dad was a school teacher. The earning potential for a school teacher, even with an advanced degree, is not very good. This is not true with engineering, accounting, law, and medicine. In other words, you can get rich through traditional education, if you choose a high earning potential career path.

If you get a traditional education, and you go into a STEM field, your probability of getting a good job, growing into a management role, and earning a lot of money is really good. It’s almost a guarantee that you’re going to be wealthy. Granted, you will not be as rich as Elon Musk, Warren Buffet, or even Robert Kiyosaki. But you will have enough wealth, and earning potential, to live a fairly comfortable life.

Contrast this with someone who follows Kiyosaki’s advice and doesn’t get a traditional education. Instead they do self-education, perhaps in real estate. This person then attempts to build a real estate business, funding the enterprise mainly from debt. There is a possibility of success. But what is the probability? Depending on where you look, the probability of failure of a real estate business is between 80-95% [1]. For other businesses, it’s around 60-70% [2].

In the 10 years it takes a high school graduate to study in a STEM field, get a job, reach junior management level, and pretty much be set for life in a career with high income potential, an entrepreneur is more likely to be in debt or bankrupt because of failed businesses. In addition, the STEM graduate still has the option, and has built up a good credit record, to transition into business.

If you’re going to follow Kiyosaki’s advice, understand the probability of success. It’s much safer to get a STEM degree and build capital.

2. Get a job

The opposite of this advice would be: “Don’t get a job”. The idea here is, again, twofold. Firstly, getting a job limits your income. You’re trading time for money, and you only have so much time in a day. Alternatively, if you spend time investing in assets that give you passive income, with which you can purchase more assets to give you more passive income, there is, essentially, no limit to your income.

Again, as with the previous point, this is also dependent on the field you’re in. CEO’s of Fortune 500 companies earn millions of dollars annually for the job that they do [3]. Entrepreneurs earn, on average, less than $100 000 per year [4] from a business that has a 70% chance of failure. It’s not bad, but it does show that getting job is sometimes not such a bad idea.

The second idea from the advice, “Don’t get a job”, is that jobs are risky. You have one income source. If you lose that job, you lose all of your income. If you build a business investing in assets that provide you with multiple income streams, your risk is more spread out. Losing one income stream is unlikely to be financially devastating. On the flip side, getting a job in a STEM field can greatly reduce the risk of being without a job, while building a business without much business acumen greatly increases your chances of business failure.

Choose a direction, but understand the risk versus reward ratio. As far as possible, minimize the risk, and maximize the reward.

3. Save money

The opposite of this advice would be: “Don’t save money.” The idea here is that money loses value when you save it. One should not save money under the proverbial mattress, but rather put money where it can grow. This principle also, if not applied correctly, can make you broke.

Warren Buffett, arguably the greatest investor of all time has some good advice on investing. Using a baseball analogy, he says, “The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.” Charlie Munger, Buffett’s life-long business partner said this: “The big money is not in buying or selling, but in the waiting.”

Charlie Munger and Warren Buffett spend most of their time reading and waiting. They spend more time reading and waiting than they actually do buying and selling stocks. When the do make a move, whether to buy or to sell, it’s a well-analyzed move that is almost certain to bring them a good return.

If you become anxious that your cash is losing value, you are likely to invest it in something that will provide less than impressive returns. At worst, you may invest it in something that loses your money. Don’t get anxious when you have cash. Spend the time evaluating investment opportunities and only invest when the time and circumstances are right. There is nothing wrong with saving money. If you save money, when the right opportunity comes along, you will be prepared to capitalize on it.

4. Get out of debt

The opposite advice would be: “Take on more debt”. The idea here is that you should use borrowed money to increase your cashflow. The more money you can borrow, the more you can increase your cashflow.

Kiyosaki distinguishes between good debt and bad debt as follows: bad debt is debt raised for luxuries that increase your expenses while good debt is debt raised for funding assets that increase your income. This is really good advice. The only limit then to how much you can increase your income, or cashflow, is how much money you can borrow.

Analysis of the assets you are purchasing is very important. There is the possibility of purchasing an asset, such as a business, or piece of real estate, that turns into a liability, making you go broke. It has been said, “A fool and his money are soon parted”. That doesn’t change when it’s someone else’s money.

The key takeaway from all of this is that one needs to be deliberative and calculated in investment decisions. Robert Kiyosaki’s advice is great advice for someone who is willing to do the work required to properly apply the principles. If you are not willing to do the work, then this advice will make you broke.

How has Kiyosaki’s advice impacted your life? Did it make you rich, or did it make you broke? Do you know why you achieved the outcome you did?

[1] https://www.biggerpockets.com/forums/311/topics/411533-why-do-95-of-real-estate-investors-fail

[2] https://www.entrepreneur.com/article/361350

[3] https://work.chron.com/average-income-ceo-fortune-500-company-5348.html

[4] https://www.entrepreneur.com/article/293512