Richdads-CASHFLOW-Quadrant-

CASHFLOW Quadrant
Good Debt and Bad Debt
Rich dad often cautioned me about good debt and bad debt. He
would often say, “Every time you owe someone money, you become
an employee of their money. If you take out a 30-year loan, you’ve
become a 30-year employee, and they do not give you a gold watch
when the debt is retired.”
Rich dad did borrow money, but he did his best to not become
the person who paid for his loans. He would explain to Mike and me
that good debt was debt someone else paid for you. Bad debt was debt
that you paid for with your own sweat and blood. That is why he loved
rental properties. He encouraged me to buy rental real estate because
“the bank gives you the loan, but your tenant pays for it.”
Income and Expense
Not only do the two sets of books apply to assets and liabilities,
but they also apply to income and expenses. The more complete verbal
lesson from my rich dad was this: “For most every liability, there
must be an asset, but they don’t appear on the same set of financial
statements. For every expense, there must also be income, and again,
they do not appear on the same set of financial statements.”
This simple drawing will make that lesson clearer:
PAYEE
PAYOR
Income
Income
Expenses
Expenses
241