Assets and liabilities
Assets put money in your pocket; liabilities take it out.
In One Sentence
Telling an asset from a liability comes down to one thing: does it make money flow into your pocket, or out of it?
Why It Matters
A-Ming ate his chicken; A-Fang kept hers to lay eggs. The same chicken became one person's meal and the other person's asset. Many people count their car or designer goods as assets, but only things that bring in income really count. I hope that when you get paid, you'll save part of it first to buy assets, then use the income they produce to buy more, so the snowball slowly grows.
One Number
After inflation, US stocks with dividends returned about 7.8% a year and 10-year government bonds about 2.6%, while cash left sitting idle lost about 2.3% of its purchasing power each year (Shiller data 1871–2026, author's calculations · Chapter V).
In the Book
Chapter I quotes Kiyosaki's definition. Chapter II makes it crystal clear with the story of A-Ming's and A-Fang's chickens. Chapter V compares the long-run returns of different kinds of assets.
Go Further
- Robert Kiyosaki This simple definition comes from Rich Dad Poor Dad.
- Cash flow Whether money buys assets or liabilities the moment it arrives decides which way your cash flows.
- Pay yourself first Save first, and you'll have money to buy assets.
- Broad-market index ETFs A broad-market index ETF is the easiest asset for an ordinary family to own.
- Borrowing and leverage Borrowing to spend is bad debt, and borrowing to invest is something this book never does, either.