Rich Dad, Poor Dad

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who controls the past controls the future, who controls the present controls the past. So when genuine "deals of a lifetime" come along, those same people cannot take advantage of the opportunity. They must play it safe, simply because they are working so hard, are taxed to the max, and are loaded with debt. As I said at the start of this section, the most important rule is to know the difference between an asset and a liability. Once you understand the difference, concentrate your efforts on only buying income-generating assets. That's the best way to get started on a path to becoming rich. Keep doing 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 100 percent to infinity. Investments that for $5,000 are soon turned into $1 million or more. Investments that the middle class calls "too risky." The investment is not risky. It's the lack of simple financial intelligence, beginning with financial literacy, that causes the individual to be "too risky," If you do what the masses do, you get the following picture. Income = Work for Owner Expense = Work for Government Asset = (none) Liability = Work for Bank As an employee who is also a homeowner, your working efforts are generally as follows: 1. You work for someone else. Most people, working for a paycheck, are making the owner, or the shareholders richer. Your efforts and success will help provide for the owner's success and retirement. 2. You work for the government. The government takes its share from your paycheck before you even see it. By working harder, you simply increase the amount of taxes taken by the government - most people work from January to May just for the government. 3. You work for the bank. After taxes, your next largest expense is usually your mortgage and credit card debt. The problem with simply working harder is that each of these three levels takes a greater share of your increased efforts. You need to learn how to have your increased efforts benefit you and your family directly.
who controls the past controls the future, who controls the present controls the past. Once you have decided to concentrate on minding your own business, how do you set your goals? For most people, they must keep their profession and rely on their wages to fund their acquisition of assets. As their assets grow, how do they measure the extent of their success? When does someone realize that they are rich, that they have wealth? As well as having my own definitions for assets and liabilities, I also have my own definition for wealth. Actually I borrowed 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 also said something about wealth. It was pretty confusing at first, but after reading it for awhile, it began to make some sense: Wealth is a person's ability to survive so many number of days forward... or if I stopped working today, how long could I survive? Unlike net worth-the difference between your assets and liabilities, which is often filled with a person's expensive junk and opinions of what things are worth-this definition creates the possibility for developing a truly accurate measurement. I could now measure and really know where I was in terms of my goal to become financially independent. Although net worth often includes these non-cash-producing assets, like stuff you bought that now sits in your garage, wealth measures how much money your money is making and, therefore, your financial survivability. Wealth is the measure of the cash flow from the asset column compared with the expense column. Let's use an example. Let's say I have cash flow from my asset column of S"J,000 a month. And I have monthly expenses of 52,000. What is my wealth? Let's go back to Buckminster Fuller's definition. Using his definition, how many days forward can I survive? And let's assume a 30-day month. By that definition, I have enough cash flow for half a month. When I have achieved $2,000 a month cash flow from my assets, then I will be wealthy. So I am not yet rich, but I am wealthy. I now have income generated from assets each month that fully cover my monthly expenses. If I want to increase my expenses, I first must increase 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 successful in building an asset column that has made me financially independent. If I quit my job today, I would be able to cover my monthly expenses with the cash flow from my assets.
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Rich Dad, Poor Dad

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