3 Things ‘Rich Dad, Poor Dad’ Gets Wrong About Building Wealth – The Motley Fool
Not only does the best-selling author belittle the lives of millions of working Americans, he’s also wrong about their potential to become financially free.
- Rich Dad, Poor Dad has some good advice about investing in income-generating assets and avoiding unnecessary spending.
- The book is dismissive of investors who play it safe and build wealth through mutual funds and 401(k)s.
- You don’t have to take huge risks to become financially independent.
I first read Rich Dad, Poor Dad when I was in my late twenties and approaching a new chapter in my career. Almost two decades later, with a few more life chapters under my belt, I returned to the best-selling book. I was shocked to find it advocated some pretty risky behavior.
To be fair, the book has some great nuggets of advice. Robert Kiyosaki stresses the importance of financial education, of building up income-generating assets, and of not spending money you don’t have on things you desire. But there’s a lot of dangerous advice in there as well. Here’s a few examples
1. He twists the idea of paying yourself first
The advice to “pay yourself first” has been around for almost a century. It refers to the idea of always diverting a percentage of your income to your savings and investments. Some people even opt to automate the payment so they don’t have to think about transferring money out of their checking account after payday. The rule of thumb is to put 5% or 10% of your income towards building wealth. Over time, this adds up — especially if you can benefit from the power of compound interest.
Kiyosaki subverts this idea and takes it into dangerous territory. He tells his readers to pay themselves before they pay their bills and taxes. His thinking is that this will pressure you into coming up with imaginative ideas to make money and cover those outstanding bills. The truth is that if you don’t pay your taxes, there can be serious repercussions. And if you don’t pay your bills, you can be charged late fees, damage your credit score, and even face foreclosure on your property. Pay yourself first, but pay your bills too.
2. He’s overly dismissive of diversified investments such as mutual funds and 401(k)s
A recent survey of millionaires showed that 8 out of 10 of them participated …….