Rich Dad Poor Dad: What the Rich Teach Their Kids About MoneyThat the Poor and Middle Class Do Not!

The Three Incomes
In the world of accounting, there are three different types of income:
1. Ordinary earned
2. Portfolio
3. Passive
When my poor dad said to me, “Go to school, get good grades, and find
a safe secure job,” he was recommending I work for earned income. When
my rich dad said, “The rich don’t work for money. They have their money
work for them,” he was talking about passive income and portfolio income.
Passive income, in most cases, is income derived from real estate
investments. Portfolio income is income derived from paper assets such as
stocks and bonds. Portfolio income is the income that makes Bill Gates the
richest man in the world, not earned income.

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Rich dad used to say, “The key to becoming wealthy is the ability to
convert earned income into passive income or portfolio income as quickly
as possible.” He would say, “Taxes are highest on earned income. The least-
taxed income is passive income. That is another reason why you want your
money working hard for you. The government taxes the income you work
hard for more than the income your money works hard for.”
In my second book, Rich Dad’s CASHFLOW Quadrant, I explain the
four different types of people who make up the world of business. They are
E (Employee), S (Self-employed), B (Business Owner), and I (Investor).
Most people go to school to learn to be an E or an S. The CASHFLOW
Quadrant is written about the core differences of these four types and how
people can change their quadrant. In fact, most of our products are created
for people in the B and I quadrants.
In Rich Dad’s Guide to Investing, book number three in the Rich Dad
series, I go into more detail on the importance of converting earned income
into passive and portfolio income. Rich dad used to say, “All a real investor
does is convert earned income into passive and portfolio income. If you
know what you’re doing, investing is not risky. It’s just common sense.”