Rich Dad Poor Dad

Liabilities are financial obligations or debts that one owes, such as mortgages, loans, or credit card debt, that drain their financial resources. Kiyosaki distinguishes between good debt, which supports asset acquisition and generates income, and bad debt, which results from unnecessary expenses. This differentiation is crucial in his financial philosophy, as recognizing and minimizing liabilities while maximizing assets is vital for financial well-being.

Cash flow is the movement of money in and out of one’s pocket or bank account. Positive cash flow occurs when one has more money coming in than going out. Kiyosaki emphasizes the importance of maintaining positive cash flow by having more money coming in than going out, as positive cash flow allows individuals to invest in assets. Negative cash flow, often caused by excessive liabilities, hinders financial progress.

An income statement, also known as a profit and loss statement, shows income, expenses, and profit or loss over a specific period. According to Kiyosaki, this snapshot helps assess one’s financial health. Kiyosaki uses this financial statement as a tool to assess and track one’s financial health, as understanding and managing income and expenses is critical for achieving financial independence.

A balance sheet provides a snapshot of one’s financial position at a given moment, listing assets, liabilities, and equity (ownership) to determine net worth. In Rich Dad Poor Dad, Kiyosaki uses the balance sheet to determine net worth. In addition, tracking changes in assets and liabilities on the balance sheet helps individuals make informed financial decisions.

Financial intelligence refers to a person’s understanding of financial concepts and their ability to make informed decisions about money, investments, and wealth-building strategies. According to Kiyosaki, without financial intelligence, individuals may struggle to differentiate between assets and liabilities, ultimately rendering their financial decision-making less effective.

Passive income is money earned with minimal effort or active involvement, often generated from investments like rental properties or dividends from stocks. Kiyosaki stresses the importance of creating passive income streams. Passive income is a key component of achieving financial independence and escaping the Rat Race.

Portfolio income refers to income generated from paper assets such as stocks, bonds, or mutual funds through dividends, interest, or capital gains. Kiyosaki encourages individuals to diversify their investments to generate portfolio income and reduce financial risk.

Earned income is money earned through active work or employment, typically from a job or self-employment. Kiyosaki suggests that relying solely on earned income is insufficient for achieving financial independence, highlighting the importance of creating other revenue sources, particularly passive income.

The Rat Race refers to the cycle of working hard for earned income, paying expenses, and struggling to achieve financial security or freedom. It represents the status quo. Kiyosaki’s goal is to help individuals break free from this cycle by acquiring assets and creating passive income streams.

Financial independence is a state in which one’s passive income exceeds their expenses, allowing someone to choose whether to work for a living. It is a central idea in the book, representing the goal of achieving financial freedom.