Assets and liabilities

Assets, liabilities and the difference most people never see

The best-selling personal finance book of all time, and one of the most disputed. A walk through the ideas in Rich Dad Poor Dad – assets versus liabilities, cash flow, the rat race – and an honest look at what the criticism is about.

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What this covers

Kiyosaki's distinction between assets and liabilities
Cash flow as the measure instead of salary
Why your home may be an expense rather than an investment
The rat race – why a higher salary does not solve the problem
Working to learn, not to earn
Financial literacy as a skill you can train
The criticism of the book, and what is actually disputed

Assets and liabilities

The core is a definition. An asset is something that puts money in your pocket. A liability is something that takes money out of it. No more complicated than that.

Kiyosaki's test – which way do the money flow?

The thing	What it does to your pocket each month	By his definition
A rental property with positive cash flow	Puts money in	Asset
The home you live in, with a mortgage	Takes money out – interest, insurance, maintenance, tax	Liability
The car	Takes money out, and loses value	Liability
Dividend-paying shares	Put money in	Asset

This is not accounting language – there the home is an asset and the mortgage a liability, separately. Kiyosaki uses the words his own way, and that is part of what professionals object to. His point is a practical one: look at the cash flow, not at the label.

The rat race

The image he uses for the trap is a wheel. You get a higher salary, and spend more. A bigger house, a more expensive car, higher fixed costs. Spending grows in step with income, and you are as exposed as before – just at a higher level.

Working to learn

One of the better pieces of advice in the book has nothing to do with investing. Choose a job by what you learn, not only by what it pays. Sales, negotiation, accounting, communication – skills that follow you whatever you end up doing.

What the criticism is about

This has to be included, because the book is often sold without it:

What still holds

Key points

Kiyosaki's definition is simple: an asset gives you money, a liability costs you money.
Cash flow says more about your finances than your salary does.
A higher salary does not solve the problem if spending grows at the same pace.
Financial literacy is a skill, not something you are born with.

Key points (cont.)

The book is disputed, and its advice is vaguer than it seems.

Questions this answers

What is the real difference between an asset and a liability?
Is my home an investment or an expense?
What does Kiyosaki mean by the rat race?
Why does a higher salary not make you rich?
What is passive income, and how do you build it?
What is the criticism of Rich Dad Poor Dad?

Questions this answers (cont.)

What is worth taking from the book, and what should you ignore?

Sources

Robert T. Kiyosaki – Rich Dad Poor Dad (1997)

Spørretimen

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