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Rich Dad Poor Dad

Chapter 3 

Word Count: 7106    |    Released on: 20/11/2017

y Teach Finan

We see each other once or twice a year on the golf course. He and his wife are wealthier than you could imagine.

can work or not work, and our wealth grows automatically, staying way ahead of inflation. I guess it means freedom. The assets are large enough to grow by themselves. It's lik

the empire and I

started?" "Is there a good book I would recommend?" "What should they do to prepare their children?" "What is the se

HEST BU

nternational Match Co., one of the world's largest companies at that time; Leon Frazier, president of the Bank of International Settlements; Richard Whitney, president of the New York Stock Exchange; Arthur Cotton and Jesse Livermore, two of the biggest stock speculators; and Albert Fall, a member of President Harding's cabinet. Twent

nge than these men did. I suspect there will be many booms and busts in the next 25 years that will parallel the ups and downs these men faced. I am concerned that too many people are focused too much on money and not their greatest wealth, which is their education. If people are prepared t

llions and are soon back to where they started. Or stories of professional athletes, who, at the age of 24, are earning millions of dollars a year, and are sleeping under a bridge by age 34. In the paper this morn

s wiping off the cars, so his story made the newspaper. He is appealing his termination, claiming hardship

e time. And while I am glad people have been getting richer and richer, I only caution that in the

n are greatly disappointed with my answer. I simply say to them what my rich dad said back

I said, my educated dad stressed the importance of reading books,

strong foundation. If you are going to build a home in the suburbs, all you need to do is pour a 6-inch slab of

l the rage. So kids graduate from school with virtually no financial foundation. One day, sleepless and deep in debt in subu

and soon, instead of the Empire State Building, we have t

hoices were possible because we were taught to pour

f you want to be rich, long term, it could be the most important subject. The question is, how do you take a

en in later years, rich dad began adding numbers. Today, Mike has gone on to master much more complex and sophisticated accounting analysis because he has had to. He has a billion-dollar empire to run. I am not as sophisticated because my empire is smaller, ye

you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how pro

or and middle class acquire liabili

ere, nearly teenagers and waiting for the secret to getting rich, and this was hi

n asset?"

If you can comprehend the simplicity, your life will have a plan and

is what an asset is, acquire t

his head. "It'

, how come everyone

ecause people do no

asset and a

ly. If it is that simple, if it is that import

few minutes to explain what

have been educated differently. They have been educated by other educated professionals, such as bankers, accountants, real estate agents, financial planners, and so fort

imple Stupid"-so he kept it simple for two young b

le be so screwed up? Why would someone buy an asset that was

In fact, if you really want to be confused, look up the words "asset" and "liability" in the dictionary. I know the definition may sound good to

not words but numbers. And if you cannot read the numb

but what the numbers are telling you. It's just like words.

an instruction book that explained how to program the VCR. All I wanted to do was record my favorite TV show on Friday night. I nearly went crazy trying to read the manual. Nothing in my world is more complex t

rd that once, I heard it a thousand times from my rich dad. And I also heard,

tants and financial professionals do net agree with the definitions, but these s

simple, using as many pictures as possible, as

ash Flow patte

Statement. It measures income and expenses. Money in and money out. T

ovices don't know the relationship between the Income Statement

nd a liability. The cause of the confusion is found in the definition of the two words. If you

ge person, it may as well be written in Mandarin. You read the

told two young boys that "assets put mone

Flow pattern o

defined through pictures, it may be easi

hing that puts mo

thing that takes mo

g assets. If you want to be poor or middle class, spend your life buying liabilities. It'

they cannot read, either in numbers or words. Something is misunderstood. The rich are rich because they are more literate in different areas than peop

In financial reporting, reading numbers is looking for the plot, the story. The story of where the cash is flowing. In 80 percent of most families, the financial st

flow pattern of a poor person,

xpenses(Taxes Food Rent C

t (n

lity

w pattern of a perso

penses(Taxes Food Mortgage

t (n

age Consumer loa

flow pattern of

intellectual property)->income (divi

ities

simplified. Everyone has living expenses,

on's life. It is the cash flow that tells the story. It is the story of how a p

so many people. The flaw is that money will solve all problems. That is why I cringe whenever 1 hear people ask

he mess they were in before they received the money. Money only accentuates the cash flow pattern running in your head. If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending. Thus, the saying, "A fool and his money is one big party," I have said many times that we go to school to gain scholastic skills and professional skill

its, to name a few. Today, kids want to be basketball stars, golfers like Tiger Woods, computer nerds, movie stare, rock stars, beauty queens, or traders on Wall Street. Simply because that is where

ut how to spend money-what to do after you make it. It's called financial aptitude-what you do with the money once you make it, how to keep people from taking it from you, how long you keep it, and how hard that money works for you. Most people cannot tell why they struggle

ing people has a set pattern. Recently married, the happy, highly educated young couple move in together, in one of the

n

e money to buy their dream home so they can have kids. They n

mes begin

o up...their expen

the Medicare tax rate is roughly 7.5 percent, but it's really 15 percent since the employer must match the Social Security amount. In essence, it is money the employer cannot pay you. On top of that, you stil

se of their dreams. Once in their house, they have a new tax, called property tax. Then, they buy a new car, new furniture and new appli

, has appreciated in value. The company offers a "bill consolidation" loan, because their credit is so good, and tells them the intelligent thing to do is clear off the high-interest consumer debt by paying off their credit card. And besides, interest on their home is a tax deduction. T

to save some money. They say to themselves, "I won't buy anything. I'll just go look." Bu

is the same. They come to one of my talks to hear what I have to say. They ask me, "Can you

y do have, and that is the real cause of their financial struggle. It is caused by fin

Intelligence solves problems, There is a saying a

dug yourself into a

apanese were aware of three powers; "The po

s spent trillions of dollars on weapons and, because

some degree of truth to the saying, "Remember the

dge. This self-knowledge, according to Japanes

ask themselves if what they do makes sense, they shoot themselves in the foot as they leave for work every morning. By not fully under

ple go along with the crowd. They do things because everybody else does it. They conform rather than question. Often, they mindlessly repeat what they have been told. Ideas such as "dive

of public speaking is caused by the fear of ostracism, the fear of standing out, the fear of criticism, the fear of ridicule,

ly when we as humans look into the mirror do we find truth. And the main reason that most people sa

a bill consolidation loan and get out of debt." "Work harder." "It's a promotion." "Someday I'll be a vice president." "Save money." "When ! get a raise, I'll buy us

and trying to keep up with the Joneses. Occasionally, we all need to l

ds. Mike and I often spent hours after work just sitting at a table with his dad while he held meetings with his bankers, attorneys, accountants, brokers, investors, managers and employees. Here wa

and detested the words, "We have to do it this way because that's the way everyone else does i

an do

ed, but he was financially educated and successful as a result. He use to tell us over and over again. "An intelligent person hires peop

igent

t get good grades, you won't do well in the real world," Mike and I just raised our eyebrows. When we were told to follow set procedures and not deviate from the rules, we could see

d why we never studied money and how it worked. To the later question, we often got the answ

money, the more distant we grew fr

the time I was 16, I probably had a far better foundation with money than both my mom and dad. I could keep books, I listen

t investment. A not-too-pleasant argument took place when I

my rich dad and my poor dad when it came to their homes. One dad though

also showed him the ancillary expenses that went along with owning the home. A bigger h

rgest investment. And owning your own home is better than nothing. I simply offer an alternate way of looking at this popular dogma. If my wif

po

ice home is an emotional thing. And when it comes to money, high emotions tend to lower financial i

ing for a home they never own. In other words, most people buy a new house every

n mortgage payments, they pay for all their other expenses w

their home went to $1,000 a month. This was after they had retired, so the in

I still have friends who owe a million dollars

pattern. If a young couple would put more money into their asset column early on, their later years would get easier, especially as they prepared to send their children to college. Their assets would have grown and would be available to help cover expenses. All too often, a house on

which other assets cou

e been invested instead of paying for high-mai

perience. Most never become what the investment world calls a "sophisticated investor." And the best investments are usually first sold to "sophisticated investors," who then turn around and sell them to the people playi

seem to always keep up with his income, never allowing him to invest in assets. As a result, his liabilities, such

d's Financi

me=E

< Li

he other hand, reflects the results of a life de

Financial

e > E

> Li

erates more than enough income to cover expenses, with the balance reinvested into the asset c

eing: The ri

Rich G

Assets ->

low, Liabil

heir wages increase, so do their taxes. Their expenses tend to increase in equal increments as their wages increase; henc

iddle Cla

s up, Expe

ncrease, Liabil

tion of today's debt-ridden society. This process of increased spending throws families into greater debt and into more financial uncertainty, even

ity is obviously in trouble and cannot be looked at as a source for retirement. Panic has sei in for the middle class. The good thing today is that many of these people have recognized these issues and have begun buyi

hildren's college and pay off credit cards. They do not have time to study to learn how to invest, so they rely on the expertise of the manager of

he "diversify" dogma put out by mutual fund brokers

ay it safe is because their financial positions are tenuous at best. Their balance sheets are not balanced. They are loaded with liabilities, with no r

take advantage of the opportunity. They must play it safe, simply because

that, and your asset column will grow. Focus on keeping liabilities and expenses down. This will make more money available to continue pouring into the asset column. Soon, the asset base will be so deep that you can afford to look at more speculative investments. Investments that may have returns of 1

asses do, you get th

= Work

Work for

t =

y = Work

homeowner, your working eff

, are making the owner, or the shareholders richer. Your efforts a

fore you even see it. By working harder, you simply increase the amount of taxes ta

, your next largest expense is usuall

ls takes a greater share of your increased efforts. You need to learn h

ow do you set your goals? For most people, they must keep their pro

rowed it from a man named Buckminster Fuller. Some call him a quack, and others call him a living genius. Years ago he got all the architects buzzing because he applied for a patent in 1961 for something called a geodesic dome. But in the application, Fuller

junk and opinions of what things are worth-this definition creates the possibility for developing a truly accurate

stuff you bought that now sits in your garage, wealth measures how much

sh flow from the asset column c

from my asset column of S"J,000 a month. And I ha

ion, how many days forward can I survive? And let's assume a 30-day

a month cash flow from my as

crease my cash flow from assets to maintain this level of wealth. Take notice that it is at this point that I no longer am dependent on my wages. I have focused on and been succes

asset column, the more my asset column grows. The more my assets grow, the more my cash flow grows. And as long as I keep my expense

y way to being rich. The actual definition of rich is

penses. The middle class buys liabilities they think are assets. So how do I star

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