Rich vs Poor People’s Cash Flows

The ideas in this article are originally the ideas of Robert Kiyosaki, described in his magnum opus ”Rich Dad Poor Dad.” Described herein is a key concept Kiyosaki meant separates the rich from the poor — their different cash-flows, specifically, how the rich have a constant endeavor to acquire assets.

Definitions and the Cash-Flow chart

Let’s start with the necessary definitions. First of all, the image below — the cash flow statement — is essential to comprehend the differences in cash flow between the rich and the poor.

Now, If you are an accountant, forget your preconceived notions of what assets and liabilities are. This is a simplified sketch made by Kiyosaki to prove a point. Definitions:

An asset is something that puts money in your pocket on a regular basis. Example: Dividend paying stocks, bonds, IOUs, real estate, businesses you own etc.

A liability is something that takes money out of your pocket on a regular basis. Example: car, house, apartment, consumer loans, credit card debt, student loans, utilities, phone bills.

Income is money coming in (from work or assets).

Expenses are money going out (restaurants, gas, food, liabilities etc.)