Rich Dad, Poor Dad Page 4
The poor have day-to-day expenses, the middle class purchase liabilities
that they think are assets (i.e., a home or a car), and the rich build a solid
base of income-generating assets.
The middle class finds itself in a constant state of financial struggle. Their
primary income is wages, as wages increase, so do their taxes. Expenses
increase as wages increase. Hence the phrase “the rat race.” They treat
their home as their primary asset instead of investing in income-
generating assets.
The rich get richer because they keep acquiring more assets and
investments to generate more income, which far exceeds their expenses.
Reasons why the home is not an asset but a liability:
1. People work almost all their lives to pay off a home (30-year loans)
2. Maintenance and utilities expenses.
3. Property tax
4. House values can depreciate.
5. Instead of investing in income-earning assets, your money goes out to
payments for the house.
Your losses:
1. Time that could have been used to grow value in other assets.
2. Capital which could have been invested rather than paying home-related
expenses
3. Education that makes you a Sophisticated investor
If you want to buy a house, first generate the cash flow by acquiring
assets, which bring income to pay for it.
Examples of real assets are:
• Apartments for rent
• Real estate
• Businesses that do not require your physical presence. You hire
managers.
Average time of holding on to an asset before selling it for a higher value:
1 year
• Stocks (Startups and small companies are good investments)
• Bonds
• Mutual funds
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Rich Dad, Poor Dad Page 5
7 years
• Real estate
• Notes (IOUs)
• Royalties on intellectual property
• Valuables that produce income or appreciate
In summary, the key steps to getting out of the rat race are the ff:
1. Understand the difference between an asset and a liability.
2. Concentrate your efforts on buying income-earning assets.
3. Focus on keeping liabilities and expenses at a minimum.
4. Mind your own business.
Lesson 3: Mind Your Own Business
KEEP YOUR DAY JOB
BUT START MINDING YOUR OWN BUSINESS.
Kiyosaki sold photocopiers on commission at Xerox. With his earnings he
purchased real estate. In 3 years’ time his real estate income was far greater
than his earnings at Xerox. He then left the company to mind his own business
full time. He knew that in order to get out of the rat race fast, he needed to work
harder, sell more copiers and mind his own business.
Don’t spend all your wages. Build a good portfolio of assets and you can spend
later when these assets bring you greater income.
Lesson 4: The History of Taxes and the Power of Corporations
Income tax has been levied on citizens in England since 1874. In the
United States it was introduced in 1913. Since then what was initially a
plan to tax only the rich eventually “trickled down” to the middle class and
the poor.
The rich have a secret weapon to shelter themselves from heavy taxation.
It’s called the Corporation. It isn’t a building with the company name and
logo in brass signage out front. A corporation is simply a legal document in
your attorney’s file cabinet duly registered under a government state
agency. Corporations offer great tax advantages and protection from
lawsuits. It’s the legal way to protect your wealth, and the rich have been
using it for generations. Do your own research and find out what tax
laws will bring you the best advantages.
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