Wednesday, June 5, 2013

Is 'Rich Dad, Poor Dad' relevant in the Indian context?

I recently read the book 'Rich Dad, Poor Dad' by Robert Kiyosaki. Sandeep was reading it in the cab when both of us were on our way to Agra from Delhi. He recommended the book very strongly. Now, I don't read a whole lot of books. But he told me a few things he read in the book and I found it interesting. So, when I got home, I bought the e-book on my iPad and read it.

Its a good book overall. However I am not sure how much of it is relevant in the Indian context. It is written keeping a lot of things, which are very US-specific, in mind

For example, the book talks about how someone bought an apartment with a loan taken from the bank and how the rent the apartment fetched was used to repay the EMI the bank charged and after that still left some money on a monthly basis. This would rarely happen in India where the interest rates are about double those in the US.

Many of the concepts presented in the book are interesting. The book suggests that we should never use our earnings directly to meet our expenses. The money must be invested in something that earns money which should then be used for our monthly expenses. That way the primary money always remains with us. Makes a lot of sense. Now, the tough part. How do you find an investment that could fund our monthly expenses on a regular basis? Let me know if you find an answer!

The interest rate difference in different countries changes things quite dramatically. What is true in the US just isn't true in India. If I invested some money in the US in the equivalent of an Indian Fixed Deposit, the returns just wouldn't make as much sense as they do in India. I am not saying FD returns in India are fantastic. Its just that in the US, they are much worse.

Another idea the book gives is to start a company to do all your investments because in a company all your expenses are deducted before you calculate and pay your tax whereas for an individual, whatever money you spend cannot be deducted from your income before you compute your tax. I am not sure it is that simple. But this is definitely worth trying.

The book is definitely an interesting read but would require caution before you start following everything that it recommends. I tend to get swayed by these kinds of books initially but after reading some criticism, I usually think in a more level-headed manner. What seemed like the miracle-cure for all my financial problems suddenly didn't seem very practical!


Sandeep said...

You are right Kamal - I have read this book sometime ago and I was left with a similar feeling - I dont know how starting a company for your personal expenses will help - whichever country one belongs to - at the end of the day, only expenses incurred in order to earn business income are deductible under Profits & Gains from Business or Profession - deducting personal expenses to save taxes amounts to fraud and I am sure some promoters have even been prosecuted for trying such tricks before. Even in America,the same principle should I really dont know. Basically, at the end of the day, the four basic things to do to regarding money is to invest in 4-5 good mutual funds with a track record of over ten years minimum (equity -debt allocation could be as per risk appetite and situation in life), PPF, term insurance (if one has dependents), medical insurance up to the maximum and some money in fixed deposits. thats it. Buy shares only if you know the underlying business inside out. If one does these basic things and remembers that some of your best investments could even be the ones that you dont make (read ULIP, Portfolio Management Schemes, buying stocks based on tips etc)and continues to do the right thing month in month out, year in year out, the chances of losing are minimal. Cheers. Stay Strong. Sandeep

Kamal Shah said...

Thanks Sandeep, for your comment. What you say makes so much sense! The trouble is we read these kinds of books and wonder, "Am I missing the boat?". Is there some way I can make so much money that I don't really have to work for money any more!

But you're right, it is important to do the right thing month after month, year after year!

What is your full name, btw? I have a feeling I know you!

Sandeep said...

Hi Kamal - My full name is Sandeep Shanbhag - I live in Mumbai. I write finance based columns and my passion is to practice and preach sound money management :)) The kind of mis-selling that is happening currently almost borders on - no it is actually crime. Btw I enjoy reading your musings - you are incredibly strong my friend - I pray to the powers that be to you continue to be as strong as you have been thus far!

Kamal Shah said...

Great! thanks so much Sandeep!

Can I find your writings on the internet somewhere? I could do with some tips on money management!

Sandeep said...

I used to write a lot earlier (till about an year ago). Lately personal and professional aspects of life have robbed me of the time required.

pls check this link

it contains a listing of all my write ups - i used to write weekly for dna for about five years or so. apart from dna, i have written for various other papers and websites (moneycontrol, rediff etc). a google search will give you the complete picture I guess :))

but yes, money management is important for everyone but very little attention is being paid to it.

let me know what you think of my "ramblings"

Kamal Shah said...

Wow! you write very well. And you are really famous!

Sandeep said...

Famous? Hardly :)) Btw, Kamal, can you share your email id - I have come across it before while reading your blog but somehow cant seem to locate it. I think after six comments back and forth, we should graduate to email for communicating :)

Kamal Shah said...


Anonymous said...

We should think in Indian context. That book may not help us directly, but there are possibilities to get out of rat race in India