AUDIOBOOK REFERENCE GUIDE

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Rich Dad Poor Dad

120 Years of the Dow

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
giantThe
crash
firstofcrash
1929,was
you
thegain a perspective
dotcom of how
crash around thetruly
year“giant” the first
2000. The
three crashes of this The Giant
century Crash of 1929
second and third crashes werewere.
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.

3
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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE
s… 20/20 Hindsight
20 Years… 20/20 Hindsight
Printing Money Printing Money
Printing Money
The chartThebelow shows that after each crash, the U.S. government an
chart below shows that after each crash, the U.S. government and
he Federalthe
Reserve BankBank
Federal Reserve began
began“printing money.”
“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
Saving thesavers
Rich are losers. Today the biggest losers are the poor and middle class,
PAGE 3
the people who work for money and save money.
Between the years 2000 to 2016, in the name of saving the economy
something I want you to reading and lectu
learn.’” RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

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

28

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

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
This is the cash-flow pattern of an asset:

INCOME STATEMENT
Income

Expenses

BALANCE SHEET
Assets Liabilities

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
PAGE 5
that relationship.
 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

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
This is the cash-flow pattern of a liability:
INCOME STATEMENT
Income

Expenses

BALANCE SHEET
Assets Liabilities

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 PAGE
you6 want to be poor or middle class,
spend your life buying liabilities.
Illiteracy, both in words and numbers, is the foundation of
maintain your wealth, it’s important to be financially literate, in words
as well as numbers.
The arrows inRICHthe diagrams represent the flow of cash, or “cash
DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

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
This is the cash-flow pattern of a poor person:
INCOME STATEMENT
Income

Job
Salary

Expenses
Taxes
Rent
Food
Transportation
Clothes

BALANCE SHEET
Assets Liabilities

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Chapter Two: Lesson 2

This is the cash-flow pattern of a person in the middle class

This is the cash-flow pattern of a person in the middle class:

INCOME STATEMENT
Job Income

Salary

Expenses
Taxes
Mortgage Payment
Car Payment
Credit Card Payment
School Loan Payment

BALANCE SHEET
Assets Liabilities
Mortgage
Car Loans
Credit Card Debt
School Loans

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Rich Dad Poor Dad

This is the cash-flow pattern of a rich person

This is the cash-flow pattern of a rich person:

INCOME STATEMENT
Income
Rental Income
Dividend
Interest
Royalties

Expenses
Taxes
Mortgage Payment

BALANCE SHEET
Assets Liabilities
Real Estate Mortgage
Stocks Consumer Loans
Bonds Credit Cards
Notes
Intellectual
Property

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Chapter Two: Lesson 2

Rich Dad Poor Dad Balance Sheets

BALANCE SHEET
Assets Liabilities

RICH DAD
Home

BALANCE SHEET
Assets Liabilities

POOR DAD
Home

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,PAGEand
10 the cash flow kept going out

through the expense column.

 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Big Home, Big Expenses Rich Dad Poor Dad

INCOME STATEMENT
Income

Expenses
Mortgage Payment
Property Tax
Insurance
Maintenance
Utilities

BALANCE SHEET
Assets Liabilities
Mortgage

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. PAGE 11

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
his income, never and a financial statement is your scorecard.
llowing him enough Banks want financial statements—Income
RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE
eft over to invest in Statement and Balance Sheet—to know how well
ssets. As a result, his
you’re scoring in your life’s financial game.
iabilities are larger
han his assets.
The following diagram on the left shows my poor dad’s income
tatement. It is worth a thousand words. It shows that his income and
xpenses are equal while his liabilities are larger than his assets.
My rich
Poor Dad’s Rich Dad’s
dad’s personal Financial Statement Financial Statement
Poor
Poor Dad’s Financial
Dad’s Financial Statement
Statement Rich
Rich Dad’s Financial
Dad’s Financial Statement
Statement
financial
Income
Income Income
Income
tatement
on the right
eflects Expenses
Expenses
he results Expenses
Expenses
of a life
dedicated to
nvesting and
Assets
Assets Liabilities
Liabilities Assets
Assets Liabilities
Liabilities
minimizing
iabilities.

85

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Chapter Two: Lesson 2 Rich Dad Poor Dad

Why the Rich Get Richer
Why
Whythe
theRich GetClass
Middle Richer
Struggle
The middle
A review of myclassrich
findsdad’s
itself in a constant
financial state of financial
statement showsstruggle.
why the rich
Their primary income is through their salary. As their wages increase,
get richer. The asset column generates more than enough income to
so do their taxes. Their expenses tend to increase in proportion to their
cover expenses, with the balance reinvested into the asset column. The
salary increase: hence, the phrase “the Rat Race.” They treat their home
asset column
as their continues
primary to grow
asset, instead and, therefore,
of investing the income
in income-producing it produces
assets.
grows with it. The result is that the rich get richer!

INCOME STATEMENT
Income
INCOME STATEMENT
Income

Expenses

Expenses

BALANCE SHEET
BALANCE SHEET
Assets Liabilities

Assets Liabilities

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Chapter Two: Lesson 2 Rich Dad Poor Dad

Why the Middle Class Struggle
Why thethe
Why Middle Class
Rich Get Struggle
Richer
TheAmiddle
review of my finds
class rich dad’s
itselffinancial statement
in a constant shows
state of why the rich
financial struggle.
get richer. The asset column generates more than enough income to
Their primary income is through their salary. As their wages increase,
cover expenses, with the balance reinvested into the asset column. The
so doasset
their taxes. Their expenses tend to increase in proportion to their
column continues to grow and, therefore, the income it produces
salarygrows
increase:
with it.hence, the isphrase
The result “the
that the richRat
get Race.”
richer! They treat their home
as their primary asset, instead of investing in income-producing assets.

INCOME STATEMENT
INCOME
Income STATEMENT
Income

Expenses

Expenses
BALANCE SHEET
Assets Liabilities

BALANCE SHEET
Assets Liabilities

PAGE 14
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
RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE
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.

How the corporate structure sits outside your

personal
The diagram income
that follows statement
shows how theand balance
corporate sheet sits
structure
outside your personal income statement and balance sheet.

CORPORATION
INCOME STATEMENT
Income

PERSONAL
INCOME STATEMENT
Expenses Income

Expenses

PERSONAL BALANCE SHEET

Assets Liabilities

126

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 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Rich Dad Poor Dad

$40,000 is created in the

asset column. Money is INCOME STATEMENT
invented without being Income
taxed. At 10 percent
interest, $4,000
a year in cash flow is
added to income.
Expenses
Taxes
Mortgage Payment

BALANCE SHEET
Assets Liabilities

$40,000 $20,000
Note Mortgage

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 goesPAGE to pay
16 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
 RICH DAD POOR DAD | AUDIOBOOK REFERENCE GUIDE

Chapter Five: Lesson 5

INCOME STATEMENT
Income

Job
Salary
How much income
would you have to
earn if the government Expenses
takes 50 percent Taxes
in taxes?

BALANCE SHEET
Assets Liabilities
How long would it take Savings
you to save $40,000?

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 PAGE
in income.
17

I have people ask what happens if the person doesn’t pay. That
who spout the words, “Pay yourself first,” actually practice what
they preach.
A picture is worth a thousand
RICH DAD words. REFERENCE
POOR DAD | AUDIOBOOK So let’s review
GUIDE 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.
People Who Pay Themselves First

People Who Pay Themselves First

INCOME STATEMENT
Income
Salary
Job

Expenses
Taxes
Rent
Food

BALANCE SHEET
Assets Liabilities
Save
Invest

242

PAGE 18
millions of people have read Clason’s book and understand the words,
“Pay yourself first,” in reality they pay themselves last.
Now I can hearRICHtheDAD POOR DAD | AUDIOBOOK REFERENCE GUIDE
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.

People Who Pay Everyone Else First

People Who Pay Everyone Else First

INCOME STATEMENT
Income
Salary
Job

Expenses
Taxes
Rent
Food

BALANCE SHEET
Assets Liabilities

243

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