poor again。 They win millions and are soon back to where they started。 Or stories of professional athletes； who； at the age of 24； are earning millions of dollars a year； and are sleeping under a bridge by age 34。 In the paper this morning； as I write this； there is a story of a young basketball player who a year ago had millions。 Today； he claims his friends； attorney and accountant took his money； and now he works at a car wash for minimum wage。
He is only 29。 He was fired from the car wash because he refused to take off his championship ring as he was wiping off the cars； so his story made the newspaper。 He is appealing his termination； claiming hardship and discrimination and that the ring is all he has left。 He claims that if you take that away； he'll crumble。
In 1997； I know so many people who are being instant millionaires。 It's the Roaring '20s one more time。 And while I am glad people have been getting richer and richer； I only caution that in the long run； it's not how much you make； it's how much you keep； and how many generations you keep it。
So when people ask； 〃Where do I get started？〃 or 〃Tell me how to get rich quick；〃 they often are greatly disappointed with my answer。 I simply say to them what my rich dad said back to me when I was a little kid。 〃If you want to be rich； you need to be financially literate。〃
That idea was drummed into my head every time we were together。 As I said； my educated dad stressed the importance of reading books； while my rich dad stressed the need to master financial literacy。
If you are going to build the Empire State Building； the first thing you need to do is dig a deep hole and pour a strong foundation。 If you are going to build a home in the suburbs； all you need to do is pour a 6…inch slab of concrete。 Most people； in their drive to get rich； are trying to build an Empire State Building on a 6…inch slab。
Our school system； having been created in the Agrarian Age； still believes in homes with no foundation。 Dirt floors are still the rage。 So kids graduate from school with virtually no financial foundation。 One day； sleepless and deep in debt in suburbia； living the American Dream； they decide that the answer to their financial problems is to find a way to get rich quick。
Construction on the skyscraper begins。 It goes up quickly； and soon； instead of the Empire State Building； we have the Leaning Tower of Suburbia。 The sleepless nights return。
As for Mike and me in our adult years； both of our choices were possible because we were taught to pour a strong financial foundation when we were just kids。
Now； accounting is possibly the most boring subject in the world。 It also could be the most confusing。 But if you want to be rich； long term； it could be the most important subject。 The question is； how do you take a boring and confusing subject and teach it to kids？ The answer is； make it simple。 Teach it first in pictures。
My rich dad poured a strong financial foundation for Mike and me。 Since we were just kids； he created a simple way to teach us。 For years he only drew pictures and used words。 Mike and I understood the simple drawings； the jargon； the movement of money； and then in later years； rich dad began adding numbers。 Today； Mike has gone on to master much more plex and sophisticated accounting analysis because he has had to。 He has a billion…dollar empire to run。 I am not as sophisticated because my empire is smaller； yet we e from the same simple foundation。 In the following pages； I offer to you the same simple line drawings Mike's dad created for us。 Though simple； those drawings helped guide two little boys in building great sums of wealth on a solid and deep foundation。
Rule One。 You must know the difference between an asset and a liability； and buy assets。 If you want to be rich； this is all you need to know。 It is Rule No。 1。 It is the only rule。 This may sound absurdly simple； but most people have no idea how profound this rule is。 Most people struggle financially because they do not know the difference between an asset and a liability。
〃Rich people acquire assets。 The poor and middle class acquire liabilities； but they think they are assets〃
When rich dad explained this to Mike and me； we thought he was kidding。 Here we were； nearly teenagers and waiting for the secret to getting rich； and this was his answer。 It was so simple that we had to stop for a long time to think about it。
〃What is an asset？〃 asked Mike。
〃Don't worry right now；〃 said rich dad。 〃Just let the idea sink in。 If you can prehend the simplicity； your life will have a plan and be financially easy。 It is simple； that is why the idea is missed。〃
〃You mean all we need to know is and we'll be rich？〃 I asked。
Rich dad nodded his head。 〃It's that simple。〃
〃If it's that simple； how e everyone is not rich？〃 I asked。
Rich dad smiled。 〃Because people do not know the difference
between an asset and a liability。〃
I remember asking； 〃How could adults be so silly。 If it is that simple； if it is that important； why would everyone not want to find out？〃
It took our rich dad only a few minutes to explain what assets and liabilities were。
As an adult； I have difficulty explaining it to other adults。 Why？ Because adults are smarter。 In most cases； the simplicity of the idea escapes most adults because they have been educated differently。 They have been educated by other educated professionals； such as bankers； accountants； real estate agents； financial planners； and so forth。 The difficulty es in asking adults to unlearn； or bee children again。 An intelligent adult often feels it is demeaning to pay attention to simplistic definitions。
Rich dad believed in the KISS principle…〃Keep It Simple Stupid〃…so he kept it simple for two young boys； and that made the financial foundation strong。
So what causes the confusion？ Or how could something so simple be so screwed up？ Why would someone buy an asset that was really a liability。 The answer is found in basic education。
We focus on the word 〃literacy〃 and not 〃financial literacy。〃 What defines something to be an asset； or something to be a liability are not words。 In fact； if you really want to be confused； look up the words 〃asset〃 and 〃liability〃 in the dictionary。 I know the definition may sound good to a trained accountant； but for the average person it makes no sense。 But we adults are often too proud to admit that something does not make sense。
As young boys； rich dad said； 〃What defines an asset is not words but numbers。 And if you cannot read the numbers； you cannot tell an asset from a hole in the ground。〃
〃In accounting；〃 rich dad would say； 〃it's not the numbers； but what the numbers are telling you。 It's just like words。 It's not the words； but the story the words are telling you。
Many people read； but do not understand much。 It's called reading prehension。 And we all have different abilities when it es to reading prehension。 For example； I recently bought a new VCR。 It came with an instruction book that explained how to program the VCR。 All I wanted to do was record my favorite TV show on Friday night。 I nearly went crazy trying to read the manual。 Nothing in my world is more plex than learning how to program my VCR。 I could read the words； but I understood nothing。 I get an 〃A〃 for recognizing the words。 I get an 〃F〃 for prehension。 And so it is with financial statements for most people。
〃If you want to be rich； you've got to read and understand numbers。〃 If I heard that once； I heard it a thousand times from my rich dad。 And I also heard； 〃The rich acquire assets and the poor and middle class acquire liabilities。〃
Here is how to tell the difference between an asset and a liability。 Most accountants and financial professionals do agree with the definitions； but these simple drawings were the start of strong financial foundations for two young boys。
To teach pre？teen boys； rich dad kept everything simple； using as many pictures as possible； as few words as possible； and no numbers for years。
〃This is the Cash Flow pattern of an asset。〃
The above box is an Ine Statement； often called a Profit and Loss Statement。 It measures ine and expenses。 Money in and money out。 The bottom diagram is the Balance Sheet。 It is called that because it is
supposed to balance assets against liabilities。 Many financial novices don't know the relationship between the Ine Statement and the Balance Sheet。 That relationship is vital to understand。
The primary cause of financial struggle is simply not knowing the difference between an asset and a liability。 The cause of the confusion is found in the definition of the two words。 If you want a lesson in confusion； simply look up the words 〃asset〃 and 〃liability〃 in the dictionary。
Now it may make sense to trained accountants； but to the average person； it may as well be written in Mandarin。 You read the words in the definition； but true prehension is difficult。
So as I said earlier； my rich dad simply told two young boys that 〃assets put money in your pocket。〃 Nice； simple and usable。
〃This is Cash Flow pattern of a liability。〃
Now that assets and liabilities have been defined through pictures； it may be easier to understand my definitions in words。
An asset is something that puts money in my pocket。
A liability is something that takes money out of my pocket。
This is really all you need to know。 If you want to be rich； simply spend your life buying assets。 If you want to be poor or middle class； spend your life buying liabilities。 It's not knowing the difference that causes most of the financial struggle in the real world。
Illiteracy； both in words and numbers； is the foundation of financial struggle。 If people are having difficulties financially； there is something that they cannot read； either in numbers or words。 Something is misunderstood。 The rich are rich because they are more literate in different areas than people who struggle financially。 So if you want to be rich and maintain your wealth； it's important to be financially literate； in words as well as numbers。
The arrows in the diagrams represent the flow of cash； or 〃cash flow。〃 Numbers alone really mean little。 Just as words alone mean little。 It's the story that counts。 In financial reporting； reading numbers is loo