Rich Dad Chapter 2 Flashcards

Questions and Answers

What is rule #1?

You must know the difference between an asset and a liability

What is the author's definition of an asset?

Something that puts money in your pocket

What is the author's definition of a liability?

Something that takes money out of your pocket

If you want to be rich, what should you do?

Spend your life buying or building assets Signup and view all the answers

If you want to be poor or middle class, what should you do?

Spend your life buying liabilities Signup and view all the answers

Describe what happens to the recently married, happy, highly educated young couple in terms of income and expenses.

They don't spend their money the right way. They keep using their credit cards to make unnecessary purchases instead of saving. Signup and view all the answers

What solves most money problems?

Intelligence Signup and view all the answers

Why can't educated dad invest in assets?

His expenses match his income, never allowing him enough left over to invest in assets and his liabilities are larger than his assets. Signup and view all the answers

What are the differences between educated dad's financial statement and rich dad's financial statement?

For the poor dad, it shows that his income and expenses are equal while his liabilities are larger than his assets. For the rich dad, it reflects the results of a life dedicated to investment and minimizing liabilities. Signup and view all the answers

When your only source of income is your paycheck, who is your financial well-being dependent on?

Their employer Signup and view all the answers

What does 'work for government' and 'work for bank' mean?

Work for government means that the government takes its share from your paycheck before you see it. Work for bank means that after taxes, your next largest expense is usually mortgage and credit-card debt. Signup and view all the answers

What is the author's definition of wealthy?

A person's ability to survive for so many number of days forward—or, if I stopped working today, how long could I survive. Signup and view all the answers

Study Notes

Understanding Assets and Liabilities

Rule #1: Differentiate between an asset and a liability.
An asset is defined as anything that puts money in your pocket.
A liability is anything that takes money out of your pocket.

Wealth Building Strategies

To achieve wealth, focus on buying or building assets.
The path to poverty or middle-class status often involves purchasing liabilities.

Financial Mismanagement

A recently married, educated couple often mismanages their finances, accumulating debt through credit card purchases instead of saving.

Importance of Financial Intelligence

Intelligence is crucial in solving most money problems.

Financial Statements

Educated dad's expenses match income, with liabilities exceeding assets, hindering investment opportunities.
Rich dad's financial statement highlights a commitment to investment and reduced liabilities.

Dependency on Income

When relying solely on a paycheck, financial stability is tied to the employer.

Tax and Debt Responsibilities

"Work for government" means taxes are deducted from income before receipt.
"Work for bank" indicates that substantial post-tax expenses include mortgages and credit card debts.

Definition of Wealth

Wealth is defined by the ability to survive a certain number of days without work, reflecting financial independence.

Description

Test your knowledge on the key concepts from Chapter 2 of 'Rich Dad Poor Dad'. This quiz focuses on the definitions of assets and liabilities, essential for understanding personal finance. Prepare to enhance your financial literacy and learn how to make informed decisions about wealth accumulation.