AUDIOBOOK REFERENCE GUIDE ® ® RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 2 Rich Dad Poor Dad 120 Years of the Dow The first crash was the dotcom crash around the year 2000. The second and third crashes were the real estate crash of 2007, followed by the banking crash of 2008. The Giant Crash of 1929 When you compare the first three crashes of the 21st century to the giant crash of 1929, you gain a perspective of how truly “giant” the first three crashes of this century were. 120 Years of the Dow 3 The first crash was the dotcom crash around the year 2000. The second and third crashes were the real estate crash of 2007, followed by the banking crash of 2008. The Giant Crash of 1929 When you compare the first three crashes of the 21st century to the giant crash of 1929, you gain a perspective of how truly “giant” the first three crashes of this century were. The Giant Crash of 1929 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 3 20 Years... 20/20 Hindsight Printing Money The chart below shows that after each crash, the U.S. government and the Federal Reserve Bank began “printing money.” Saving the Rich Between the years 2000 to 2016, in the name of saving the economy, the banks of the world kept cutting interest rates and printing money. While our leaders want us to believe they were saving the world, in reality, the rich were saving themselves and threw the poor and middle class under the bus. Today, interest rates in many countries are below zero, which is why savers are losers. Today the biggest losers are the poor and middle class, the people who work for money and save money. Printing Money The chart below shows that after each crash, the U.S. government an Reserve Bank began “printing money.” Rich Between the years 2000 to 2016, in the name of saving the economy RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 4 28 something I want you to learn.’” What is this man talking about? I asked myself. Life around was life talking to me? Now I knew I had to qui I was talking to someone who needed to be locked up. “If you lessons, yo well. If no continue t around. P things. So life push t Others ge push back push back boss, or th their husb They do n life that’s p reading and lectu RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 5 This is the cash-flow pattern of an asset Rich Dad Poor Dad Here is how to tell the difference between an asset and a liability. Most accountants and financial professionals do not agree with the definitions, but these simple drawings were the start of strong financial foundations for two young boys. This is the cash-flow pattern of an asset: The top part of the diagram is an Income Statement, often called a Profit-and-Loss Statement. It measures income and expenses: money in and money out. The lower part of the diagram is a Balance Sheet. It’s called that because it’s supposed to balance assets against liabilities. Many financial novices do not know the relationship between the Income Statement and the Balance Sheet, and it is vital to understand that relationship. Assets BALANCE SHEET Liabilities Income Expenses INCOME STATEMENT RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 6 This is the cash-flow pattern of a liability Chapter Two: Lesson 2 So as I said earlier, my rich dad simply told two young boys that “assets put money in your pocket.” Nice, simple, and usable. This is the cash-flow pattern of a liability: Now that assets and liabilities have been defined through pictures, it may be easier to understand my definitions in words. An asset is something that puts money in my pocket whether I work or not. A liability is something that takes money out of my pocket. This is really all you need to know. If you want to be rich, simply spend your life buying or building assets. If you want to be poor or middle class, spend your life buying liabilities. Illiteracy, both in words and numbers, is the foundation of Assets BALANCE SHEET Liabilities Income Expenses INCOME STATEMENT RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 7 This is the cash-flow pattern of a poor person 71 maintain your wealth, it’s important to be financially literate, in words as well as numbers. The arrows in the diagrams represent the flow of cash, or “cash flow.” Numbers alone mean little, just as words out of context mean little. It’s the story that counts. In financial reporting, reading numbers is looking for the plot, the story of where the cash is flowing. In 80 percent of most families, the financial story paints a picture of hard work to get ahead. However, this effort is for naught because they spend their lives buying liabilities instead of assets. This is the cash-flow pattern of a poor person: Assets BALANCE SHEET Liabilities Income Expenses INCOME STATEMENT Taxes Rent Food Transportation Clothes Job Salary RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 8 This is the cash-flow pattern of a person in the middle class Chapter Two: Lesson 2 This is the cash-flow pattern of a person in the middle class: Job Assets Income INCOME STATEMENT BALANCE SHEET Expenses Liabilities Salary Taxes Mortgage Payment Car Payment Credit Card Payment School Loan Payment Mortgage Car Loans Credit Card Debt School Loans RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 9 This is the cash-flow pattern of a rich person Rich Dad Poor Dad This is the cash-flow pattern of a rich person: Assets BALANCE SHEET Liabilities Income Expenses Taxes Mortgage Payment Rental Income Dividend Interest Royalties Real Estate Stocks Bonds Notes Intellectual Property Mortgage Consumer Loans Credit Cards INCOME STATEMENT RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 10 Rich Dad Poor Dad Balance Sheets Chapter Two: Lesson 2 The diagram above illustrates the difference in perception between my rich dad and my poor dad when it came to their homes. One dad thought his house was an asset, and the other dad thought it was a liability. I remember when I drew the following diagram for my dad, showing him the direction of cash flow. I also showed him the ancillary expenses that went along with owning the home. A bigger home meant bigger expenses, and the cash flow kept going out through the expense column. Assets RICH DAD POOR DAD BALANCE SHEET Liabilities Assets BALANCE SHEET Liabilities Home Home RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 11 Big Home, Big Expenses Rich Dad Poor Dad Today, people still challenge me on the idea of a house not being an asset. I know that for many people, it is their dream as well as their largest investment. And owning your own home is better than nothing. I simply offer an alternate way of looking at this popular dogma. If my wife and I were to buy a bigger, flashier house, we realize it wouldn’t be an asset. It would be a liability since it would take money out of our pocket. So here is the argument I put forth. I really don’t expect most people to agree with it because your home is an emotional thing Assets BALANCE SHEET Liabilities Income Expenses INCOME STATEMENT Mortgage Payment Property Tax Insurance Maintenance Utilities Mortgage RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 12 85 never enough to invest in a result, his larger assets. The following diagram on the left shows my poor dad’s income is worth a thousand words. It shows that his income and equal while his liabilities are larger than his assets. My rich right life Poor Dad’s Financial Statement Rich Dad’s Financial Statement Assets Liabilities Income Expenses Assets Liabilities Income Expenses Poor Dad’s Financial Statement Rich Dad’s Financial Statement Assets Liabilities Income Expenses Assets Liabilities Income Expenses Rich Dad’s Financial Statement Poor Dad’s Financial Statement and a financial statement is your scorecard. Banks want financial statements—Income Statement and Balance Sheet—to know how well you’re scoring in your life’s financial game. RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 13 Why the Rich Get Richer Chapter Two: Lesson 2 Why the Rich Get Richer A review of my rich dad’s financial statement shows 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 is that the rich get richer! Assets Income INCOME STATEMENT BALANCE SHEET Expenses Liabilities Rich Dad Poor Dad Why the Middle Class Struggle The middle class finds itself in a constant state of financial struggle. Their primary income is through their salary. As their wages increase, so do their taxes. Their expenses tend to increase in proportion to their salary increase: hence, the phrase “the Rat Race.” They treat their home as their primary asset, instead of investing in income-producing assets. Assets INCOME STATEMENT BALANCE SHEET Liabilities Income Expenses RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 14 Why the Middle Class Struggle Rich Dad Poor Dad Why the Middle Class Struggle The middle class finds itself in a constant state of financial struggle. Their primary income is through their salary. As their wages increase, so do their taxes. Their expenses tend to increase in proportion to their salary increase: hence, the phrase “the Rat Race.” They treat their home as their primary asset, instead of investing in income-producing assets. Assets INCOME STATEMENT BALANCE SHEET Liabilities Income Expenses Chapter Two: Lesson 2 Why the Rich Get Richer A review of my rich dad’s financial statement shows 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 is that the rich get richer! Assets Income INCOME STATEMENT BALANCE SHEET Expenses Liabilities RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 15 How the corporate structure sits outside your personal income statement and balance sheet 126 money into a corporation to finance the voyage. The corporation would then hire a crew to sail to the New World to look for treasure. If the ship was lost, the crew lost their lives, but the loss to the rich would be limited only to the money they invested for that particular voyage. The diagram that follows shows how the corporate structure sits outside your personal income statement and balance sheet. Assets PERSONAL INCOME STATEMENT PERSONAL BALANCE SHEET Income Expenses CORPORATION INCOME STATEMENT Liabilities Income Expenses RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 16 Rich Dad Poor Dad During this depressed market, Kim and I were able to do six of these simple transactions in our spare time. While the bulk of our money was in larger properties and the stock market, we were able to create more than $190,000 in assets (notes at 10 percent interest) in those six “buy, create, and sell” transactions. That comes to approximately $19,000 a year in income, much of it sheltered through our private corporation. Much of that $19,000 a year goes to pay for our company cars, gas, travel, insurance, dinners with clients, and other things. By the time the government gets a chance to tax that income, it’s been spent on legally $40,000 is created in the asset column. Money is invented without being taxed. At 10 percent interest, $4,000 a year in cash flow is added to income. Assets BALANCE SHEET Liabilities Income Expenses Taxes Mortgage Payment $40,000 Note $20,000 Mortgage INCOME STATEMENT RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 17 Chapter Five: Lesson 5 This was a simple example of how money is invented, created, and protected using financial intelligence. Ask yourself: How long would it take to save $190,000? Would the bank pay you 10 percent interest on your money? And the promissory note is good for 30 years. I hope they never pay me the $190,000. I have to pay a tax if they pay me the principal, and besides, $19,000 paid over 30 years is a little over $500,000 in income. I have people ask what happens if the person doesn’t pay. That BALANCE SHEET INCOME STATEMENT Job Assets Income Expenses Liabilities Salary Taxes Savings How much income would you have to earn if the government takes 50 percent in taxes? How long would it take you to save $40,000? RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 18 People Who Pay Themselves First 242 who spout the words, “Pay yourself first,” actually practice what they preach. A picture is worth a thousand words. So let’s review the financial statements of people who pay themselves first against someone who doesn’t. Study the diagrams and see if you can pick up some distinctions. Again, it has to do with understanding cash flow, which tells the story. Most people look at the numbers and miss the story. INCOME STATEMENT BALANCE SHEET Job Assets Income Expenses Liabilities Salary Taxes Rent Food Save Invest People Who Pay Themselves First RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE PAGE 19 People Who Pay Everyone Else First 243 millions of people have read Clason’s book and understand the words, “Pay yourself first,” in reality they pay themselves last. Now I can hear the howls from those of you who sincerely believe in paying your bills first. And I can hear all the responsible people who pay their bills on time. I am not saying be irresponsible and not pay your bills. All I am saying is do what the book says, which is: Pay yourself first. And the previous diagram is the correct accounting picture of that action. Job Assets Income INCOME STATEMENT BALANCE SHEET Expenses Liabilities Salary Taxes Rent Food People Who Pay Everyone Else First