Rich Dad, Poor Dad

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who controls the past controls the future, who controls the present controls the past. experience. 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 playing it safe. I am not saying don't buy a house. I am saying, understand the difference between an asset and a liability. When I want a bigger house, I first buy assets that will generate the cash flow to pay for the house. My educated dad's personal financial statement best demonstrates the life of someone in the rat race. His expenses seem to always keep up with his income, never allowing him to invest in assets. As a result, his liabilities, such as his mortgage and credit card debts are larger than his assets. The following picture is worth a thousand words: Educated Dad's Financial Statement Income=Expense Asset < Liability My rich dad's personal financial statement, on the other hand, reflects the results of a life dedicated to investing and minimizing liabilities: Rich Dad's Financial Statement Income > Expense Asset > Liability A review of my rich dad's financial statement is why the rich get richer. The asset column generates more than enough income to cover expenses, with the balance reinvested into the asset column. The asset column continues to grow and, therefore, the income it produces grows with it. The result being: The rich get richer! Why the Rich Get Richer Income -> Assets -> More Income Expenses are low, Liabilities are low The middle class finds itself in a constant state of financial struggle. Their primary- income is through wages, and as their wages increase, so do their
who controls the past controls the future, who controls the present controls the past. taxes. Their expenses tend to increase in equal increments as their wages increase; hence the phrase "the rat race." They treat their home as their primary asset, instead on investing in income-producing assets. Why the Middle Class Struggle Income goes up, Expenses go up Assets do not increase, Liabilities do increase This pattern of treating your home as an investment and the philosophy that a pay raise means you can buy a larger home or spend more is the foundation of today's debt-ridden society. This process of increased spending throws families into greater debt and into more financial uncertainty, even though they may be advancing in their jobs and receiving pay raises on a regular basis. This is high risk living caused by weak financial education. The massive loss of jobs in the 1990s-the downsizing of businesses-has brought to light how shaky the middle class really is financially. Suddenly, company pension plans are being replaced by 401k plans. Social Security 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 buying mutual funds. This increase in investing is largely responsible for the huge rally we have seen in the stock market. Today, there are more and more mutual funds being created to answer the demand by the middle class. Mutual funds are popular because they represent safety. Average mutual fund buyers are too busy working to pay taxes and mortgages, save for their children'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 a mutual fund. Also, because the mutual fund includes many different types of investments, they feel their money is safer because ii is "diversified." This group of educated middle class subscribes to the "diversify" dogma put out by mutual fund brokers and financial planners. Play it safe. Avoid risk. The real tragedy is that the lack of early financial education is what creates the risk faced by average middle class people. The reason they have to play it safe is because their financial positions are tenuous at best. Their balance sheets are not balanced. They are loaded with liabilities, with no real assets that generate income. Typically, their only source of income is their paycheck. Their livelihood becomes entirely dependent on their employer.
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Rich Dad, Poor Dad

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