The Rich Dad Poor Dad method teaches that success can be measured in a variety of ways. Many people would consider a man who did well in school and went on to earn a high paying salary at a corporate job successful. On the other hand, many would view a man who did not get to graduate college and who earns a seemingly small earned income from home a failure. However, success can often be gained by ignoring these common stereotypes. By creating an ongoing source of residual income, you can make sure your money is working hard for you.
The Rich Dad Poor Dad Book
Written by Robert Kiyosaki, this New York Times best seller lays out a method of success that Kiyosaki developed from observing and learning from his two dads. The first, his biological father graduated from college with a Ph.D. and went on to earn a high paying earned income salary. The other, his best friend’s father never went to college and still ended up one of Hawaii’s richest men.
The book explains how even though is biological father or rich dad made a good earned income he rarely had enough money left come the end of each month. His best friend’s father or Kiyosaki’s poor dad built up a reliable stream of both passive and portfolio income that continued to earn him money on an ongoing basis, which ultimately led to him being incredibly successful and wealthy. Kiyosaki strives to teach others this mindset and success can be attained by utilizing this powerful method.
Three Types of Income
In the Rich Dad Poor Dad method, you learn that there are three main types of income. While each of these income types provides you with cash flow, one will only provide you with money once and the other two will keep on earning.
Earned Income
This is the income that most people earn on a daily basis through work they do. If you are earning a salary or being paid by the hour, then you are being paid only once for the work that you do. While this is still money in your pocket, it provides you with no ongoing benefits.
Passive Income
When you create a stream of income that continues to earn you money even after the initial setup, with no or little effort required on your part, this is known as passive income. Unlike its earned counterpart, passive income can keep on working for you even after you have quit working for it. The Rich Dad Poor Dad method suggests this is the most important type of income and can be used in conjunction with portfolio income to earn long lasting wealth.
Portfolio Income
Gained through paper assets such as stocks and bonds, portfolio income can help you gain success. Although it does not pay upfront as earned income does, it produces an ongoing source of cash that can easily double or triple your investment overtime.
Why is Residual Income so Important?
When it comes to using the method spelled out in the Rich Dad Poor Dad method, residual income is the most essential part of success. Earned income is limited by the amount of time you can put in. Since your time is a limited asset, there is only so much you can make with earned income.
Residual income allows you to keep earning on a regular basis. You are also able to start up a variety of different passive income streams that will allow you to have a backup plan should one stream fail at some point.
With the Rich Dad Poor Dad mindset, you can create an income that keeps on earning for years to come. True success can be found when you develop a residual income stream that works for you long after you stop working for it.