Rich Dad Poor Dad

In his book Rich Dad Poor Dad Robert T. Kiyosaki describes his growth process as he was influenced by his will educated dad and the father of a friend who was developing his business.

The teachings he got from his two "dads" were very different. But, making a choice between the teachings was not easy. Robert's well educated father was not poor yet--in fact he became the head of the Hawaii Department of Education. Nor was his friend's dad rich yet--he was busy building a business.

As you read the book, you'll see how Robert Kiyosaki learned the principles that led to his success.

There are four basic ways to make money.

"Poor" people typically earn their money from the left hand side of this quadrant. They either work for someone else (a businessman) or they are self-employed.

Their paychecks are totally dependent on their ability to perform. They will stop getting their paychecks if they stop working.

And it doesn't matter if you are working for someone else or are self-employed working for yourself. Even a doctor or a lawyer can only make so much. If they take the day off they don't get paid.

"Rich" people typically earn their money from the right hand side of the quadrant. They either own one or more businesses or they are investors.

Robert Kiyosaki identifies three types of businesses.

• "C" Type Businesses -- These are the corporations everyone is familiar with. You may work for a large corporation like I did. And, you see many small businesses, manufacturing plants or shops in every metropolitan area.

• Franchises -- Everyone is familiar with one or more of the 1,500 franchises in the United States. Nearly everyone has gotten a fast food meal at a franchise. You've also probably gotten your oil changed or bought donuts at a franchise. A franchise is a business that sells products from a particular manufacturer and operates in a way that has been proven successful.

• Network Marketing -- Network marketing (or multilevel marketing) is where you sell products from a particular manufacture and are taught to operate in a way that has proven successful. In addition, you can offer the opportunity to others and can benefit from their success.

He recommends that the average person become involved in a Network Marketing business. It the simplest business to start and requires little or no startup capital. And, as you become successful, you will learn about cashflow, organizational structure, and managing and inspiring people.

While most people think of stocks, bonds, and mutual funds as investments. Robert Kiyosaki invests in income producing real estate. This can be rental houses, apartment buildings, or office buildings. You must structure your purchase agreement so you will receive a positive cash flow right at the start.

Not only can income producing property procude a positive cash flow, but through "depreciation" it can help you shelter some of your income.

Every business keeps two sets of books.

They record their income and their expenses. That's pretty simple.

They also record their assets and their liabilities.

But to understand how the rich spend money, we need to define assets and liabilities in a distinct way.

Assets are what you buy that pays you back. Assets produce income.

Liabilities are what cost you money. Liabilities cause expenditures.

Assets might be high quality stocks paying quarterly dividends. They include rental property from which you get a monthly income. Anything that pays you, such as businesses, royalties, bank accounts are assets.

Assets would not, typically, include your home. Your home does not pay you income. Yes, it may increase in value over time. When you die, someone will collect it's value. But, your home does not create an income stream for you.

Your home will probably be a liability, however. You have to pay taxes and maintenance. You may also have a mortgage that requires monthly payments.

Liabilities also include consumer debt. Most people today have $6,000 or $7,000 in high interest credit card debt. They have purchased all the good things in life.

When most people purchase a car today, they don't ask, "Can we afford the car?" Instead they ask, "Can we afford the payments?" They just assume they will get deeper into debt.

Robert Kiyosaki in Rich Dad Poor Dad indicates that on payday the middle class buy liabilities.

When they get a raise, their income rises. What do they do with that extra income?

They decide they can go deeper into debt. They buy a new car, a boat, motorhome, big screen TV, or even a new house further out in the suburbs.

They create a monthly mortgage payment, monthly credit card payments, monthly membership payments. As the middle class make more money they reason that they can buy more goods and services on credit.

The result is that they always feel their income is never enough. Every time they get a raise they buy more expensive items on credit. This never ending cycle of increasing income and increasing debt payments is called the "rat race".

To get out of the rat race you must purchase assets.

You must own your own business or invest in other types of assets.

Purchasing assets will create an income stream that will increase over time. When your income stream exceeds the wages of your job, you have bought your personal financial freedom.

Read the details of Robert Kiyosaki's journey and his advice in Rich Dad Poor Dad.