Three Types of Income

Why knowing the differences between the three types of income will increase your financial IQ.

• My rich dad spent a lot of time playing Monopoly with his son, Mike, and I when we were children. We would play for hours exchanging four green houses for one red hotel. Buried in that simple formula is a powerful lesson, a lesson that has served me well throughout my adult life.

That was one of the first, and most important, lessons in financial education I ever learned: the value of cash flow.

Monopoly is a game that teaches you how to create positive cash flow. You purchase a property and collect rents when someone lands on your property. In order to make money, much like in real life, you improve the value of your properties and eventually sell them. When you move on from single-family homes (green houses) and into larger properties like duplexes, 4-plexes, and, eventually, apartment complexes (red hotels), you increase your cash flow.

Thankfully, I learned about cash flow early at an early age by playing that game. Unfortunately for most people, however, it’s a lesson they never learn.

It’s important to understand that following the lessons from my rich dad, and by playing the game of Monopoly, has allowed me to make money differently than someone who follows traditional advice. Most people are given advice like to go to school, get a safe secure job, invest in a diversified portfolio of stocks, bonds and mutual funds.

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