Chapter by chapter book review: Rich Dad Poor Dad, chapter 3 lesson 2: Why teach financial litteracy?

in money •  14 days ago

In this Chapter, Rich dad explains to the boys how Rich people, Middle Class People and Poor people have a different view of what money is.

He uses two basic tools of accounting: incomes and expenses, and assets and liabilities

Poor people have an income from a job, and they spend it entirely on expenses

Middle class people have an income from a job, and they spend it on expenses. That which is left goes to liabilities, which they often perceive to be assets.

Assets are defined as all things which you own, which generate an income
Liabilities are defined as all things you own which represent an expense.

A car costs insurance, maintenance, and depreciates.
A house costs property taxes, heating, maintenance,...

True assets are businesses, Intellectual property, things which bring you royalties, stocks, bonds,...

The rich take their income, and rather than spend it on increasing their liabilities (by buying a nicer car, bigger house,...) they spend it on assets. These assets in turn produce more income. which becomes a positive feedback loop.

Like the previous chapter. Even though being pretty well in handling finances, and looking a lot farther ahead than next month when it comes to treating my finances, I can again feel that this chapter in itself has changed my viewpoint on money.

I am actually thinking of drawing up a detailed balance sheet like the way it was mentioned in this book. And I advise all of you to do the same.

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