Why can somebody with a large salary have very little financial security? Robert Kiyosaki’s Rich Dad Poor Dad draws attention to the relationship between what comes in, what goes out, what you own and what you owe. Salary is only one part of the story.
The four elements of your financial position
Income: the inflow
Employment income, self-employment earnings, business profits, interest, rent and investment distributions can all contribute to cash coming in. Compare amounts after applicable tax and costs when measuring spendable cash flow.
Expenses: the outflow
Housing, food, transport, insurance, bills, interest and discretionary spending affect how much is available for saving, investing and debt repayment. Keep loan principal repayments separately identified: they use cash but also reduce a liability.
Assets: what you own
In financial accounting, assets include cash, property, investments, superannuation balances and business ownership. Kiyosaki uses a simplified cash-flow lens, encouraging ownership of things that put money in your pocket. Those are not the same definitions: a family home may be an asset even when it generates no rent, and shares may be assets even when they pay no dividend.
Liabilities: what you owe
Mortgages, car finance, credit card balances and personal loans are common liabilities. A loan's balance belongs on the balance sheet; its interest and repayments belong in a cash-flow analysis. Some borrowing supports productive activities, but it also creates risk.
Worked example: earning more is not the same as saving more
| Monthly figures | Household A | Household B |
|---|---|---|
| After-tax employment income | $9,000 | $7,000 |
| Net recurring investment income | $0 | $1,000 |
| Living costs and debt payments | $8,500 | $5,500 |
| Monthly surplus | $500 | $2,500 |
Household B can retain $30,000 over a year if these numbers remain constant; Household A retains $6,000. That gap says nothing by itself about total net worth, because property and debt balances could differ substantially.
What does the “rat race” mean?
Kiyosaki describes rising income being matched by rising lifestyle commitments. A pay rise is useful, but increasing permanent expenses at the same rate can leave a household with no greater flexibility. Choosing to direct part of future increases into savings, debt reduction or investments changes the trajectory.
Is your home an asset or a liability?
Conventional accounting treats a home as an asset and the outstanding mortgage as a liability. Kiyosaki asks whether the home generates income or demands cash. Both questions matter: measure the home's net equity and its ongoing cost separately. Housing also provides security and useful accommodation value, even without rent receipts.
Three measures to revisit
- Cash surplus: total cash inflows minus outflows.
- Net worth: the value of assets minus outstanding liabilities.
- Expense coverage: recurring net asset income divided by recurring expenses.
Coverage of 100% is not a guarantee of retirement readiness. Investment income can change, emergencies happen, and inflation reduces purchasing power. Also consider liquidity, diversification and risk.
Try the calculations yourself
Use the linked tools to enter your own assumptions and read the formulas. They run within your browser without a financial account.
Explore the financial foundations calculators →
Further reading
Rich Dad education website · ASIC Moneysmart budgeting · Next: the four income quadrants
Independent educational commentary inspired by Robert Kiyosaki’s books; not affiliated with or endorsed by the author or publisher. General information, not financial advice. Examples are fictional.