Rich Dad Poor Dad Strategy

From what I have understood from the book is the ease to differentiate what asset and liabilities mean. Money out of my pocket is liability and money into my pocket is an asset. This differentiation is very essential to be considered to get rich in wealth. Most of us create more liabilities with an income increase. According to my personal experience, with each increment, I got a moped, a bike and finally a car. This enabled me to show off in society but personally, it was draining my income, creating issues for me to pay off the bills. Before we begin with income, expense, asset, and liability let's understand the types of income and how they evolve with a life span.

Types of Income

Active Earning

As per my experience, my increment rate is a sigmoid. I lagged for a while to get a job, worked hard to get greater increment percentage and finally increment rate lowers with the saturation of ability/company.

I suppose this would be the curve of most hard-working individuals.

Passive Earning

These earning look small initially but they are actual one which is exponential in nature that can greatly support in the longer run.

Portfolio Earning

The portfolio is earned on an investment or business owner. Growth is not steady where there are rise and fall of assets.

Combining All three types in a life span

Now there needs to be a strategy where it is possible to decide the right time to invest and the right time to an exponential increase in one's life span. On average there would be a time where the Active income growth will decline when a person reaches saturation. And at the age of retirement, the active income will inevitably fade, hence it is desirable to start investing as the growth of active income reduces and work on portfolio and savings whenever investment returns are steady. It is the investment and passive income that would benefit at later stages of life.

Strategies

To begin with, passive and portfolio income are built on assets.

Poor Dad Strategy

Income = Expenses

Assets < Liabilities

Middle-Class Dad Strategy

Income > Expenses

Assets < Liabilities

Rich Dad Strategy

Income > Expenses

Assets > Liabilities

Wealth Cheatsheet

1. Keep liabilities below 33% including Credit card Always. Don’t buy something in the name of luxury if it goes above 33% cause that will keep you in the middle-class category.
2. Minimize the expenses to 40% of income with 7% buffer
3. Start saving 20% of income for future investment
4. Push yourself beyond limit if Active Income Growth reduces before saved money for investment matures
5. Once Income Growth reduces, start investing small
6. Once in the investment game, own a company
7. On the first successful investment, get assets income value 150% of current active income.
8. Stabilize the active income.
9. Backup with portfolios and saving to gain asset income target to 200% against active. (i.e asset income 200% > active income)
10. Make a bigger investment to own a regular return system with calculated risk.
11. Cover regular expenses with passive and portfolio income.
12. Enjoy retirement with a well-established system.
13. Keep the Combined chart in mind.