I’m going to give you two financial statements: poor dad’s and rich dad’s. First thing is first, we have the income statement and balance sheet. Poor dad’s financial statement is right down the middle; 50/50. Income takes up half and expenses take up half.
On the other hand, Rich Dad’s financial statement has 70% income and 30% expenses, meaning he minimizes his expenses (which I’ve done through all of 2019.
The balance sheet is very interesting. Poor dad’s financial statement had 70% liabilities vs. 30% assets. However, Rich dad’s is flipped.
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!Rich Dad Poor Dad
Income up, expenses down. Assets up, liabilities down.
And why do 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.Rich Dad Poor Dad
Income is up, but so are the expenses. In addition to that, assets are at nothing, but liabilities continue to rise.
This pattern of treating your home as an investment, and the philosophy that a pay raise means you can buy a larger home or spend more, is the foundation of today’s debt-ridden society. Increased spending throws families into greater debt and into more financial uncertainty, even though they may be advancing in their jobs and receiving raises on a regular basis. This is high-risk living caused by weak financial education.
The massive loss of jobs in recent times proves how shaky the middle class really is financially. Company pension plans are being replaced by 401(k) plans. Social Security is obviously in trouble and can’t be relied upon as a source for retirement. Panic has set in for the middle class.
Today, mutual funds are popular because they supposedly represent safety. Average mutual-fund buyers are too busy working to pay taxes and mortgages, save for their children’s college, and pay off credit cards. They do not have time to study investing, so they rely on the expertise of the manager of a mutual fund. Also, because the mutual fund includes many different types of investments, they feel their money is safer because it is “diversified.” This educated middle class subscribes to the dogma put out by mutual-fund brokers and financial planners: “Play it safe. Avoid risk.”Rich Dad Poor Dad