Imagine If you were to stop working, how long will you be able to survive on your remaining savings? What I just asked you was the definition of wealth. Acquiring wealth makes a person truly rich, and that is what the book Rich Dad, Poor Dad strives to teach us.
Rich Dad Poor Dad teaches us that the reason the rich stay wealthy is because they acquire assets whilst the poor or middle class people acquire liabilites.
An asset is anything that puts money in your pocket while a liability is anything that takes money out of your pocket.
Let's compare a cashflow of how the poor, the middle class and the rich use their income:
A poor person earns his income from a job and his expenses are things like food, clothes, shelter and entertainment. He
has no assets. But his expense becomes his liability as it keeps taking money out of his pockets.
A middle class person earns more income from a job so he can save money. He purchases things, that he thinks are assets but are actually liabilities. He purchases a home and has a mortgage, transportation, credit card debt etc. Hence why it stops him becoming wealthy.
On the other hand a rich person, instead of looking to earn more money from their normal job as their only source of income, buys and owns assets that bring them a form of Passive Income.
Passive Income is an income that doesn't require you to trade your time for money, so in other words, you can be earning even when you are asleep.
Some examples of passive incomes are businesses that do not require your presence, investments in stocks, bonds, mutual funds, income generating real estate, royalties, notes and anything else that has value that produces income.
Take a look at the above cash flow, which category do you fit into?
Robert Kiyosaki explains that many people think a house is an asset whereas it is a liabilty because it comes with a mortgage along with maintenance costs and upkeep that take money out of your pockets.
Cashflow helps us keep track of our wealth and when we are losing money we need to look at the following simple formula to see where we are going wrong.
BAD Good
Income = Expense Income > Expense
Assets < Liabilities Assets > Liabilities
If your income is the same as your expense and your assets are lesser than your liability, you will soon go into debt.
If your income is greater than your expense and your assets are greater than your liabilties, you will get wealthier.
And that is why the rich keep getting richer, and the poor keep staying poor. The rich use their assets to pay off their
liabilities and the remaining money is invested into assets again. Therefore, their asset coloumn continues to grow and
their income continues to grow with it. For normal people, their profession is their income but for the rich, their assets are their income.
On a side note, this book was one of the first financial book I ever read and it introduced to me a new world of managing
my money. It's a great read for beginners starting out, who want to learn more about the finance world.
Robert Kiyosaki said,
''Don't work for Money, Make Money work for you.''
If you want to learn more about Rich Dad Poor Dad, I encourage you to read the book and let me know whether you have what it takes to be a Rich Dad.
This has been another Breakdown. I hope you enjoyed it. Please let me know in the comments what other books, you would like me to breakdown.
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