Rich Dad, Poor Dad: Lesson 1

Michael Crilly
Jul 24, 2017 · 3 min read

“The rich don’t work for money.” This is a meaty statement to get your mind around, but it makes sense when you think about it. The rich get richer, and the how is actually quite simple.


When it comes to why the rich get richer, the formulae is simple: they spend their money on the right things. Instead of taking a $1,000 bonus and buying a new coat, a new watch, and maybe taking a short vacation, the rich buy stocks, bonds, and education. They buy things that generate more money.

The rich buy money generating assets before they buy luxury items. Assets that generate money eventually, given enough time, enable the rich to buy a new watch or a fancy new car, because they don’t have to pay for it. Their assets pay for it. They keep the income from their assets above their expenses.

Taking a vacation is certainly a luxury we all want, but unless your (passive) income is paying for it, you’ve got work to do. The vacation will give you fond memories and emotional highs, but you’ll return to your 9–5 and debt and be brought back down to Earth pretty quickly.

Investing that bonus in education (books, Coursera, Skillshare), stocks, and bonds will generate more money. Once you have assets generating more money, continuously and consistently, you can afford to take a vacation because it’s not costing you anything. Ta-da!

You paycheck is like a bag of seeds: you can either grow them or eat them.

Let’s continue the theme of understanding what a liability is with some very common purchases.


A car is a liability. You very likely need one, but it’s still a liability. If a car is a liability, why are we trained, as a society, to buy $30,000 cars? Do we really need an Audi? They’re beautiful cars, but they depreciate faster than virtually any other luxury you can buy.

Unless you’re driving for Uber, your car is very likely to be a liability, and even if you are a professional driver the car is still a liability — it costs you money to run. It doesn’t generate cash on its own whilst it’s still stationary on your drive way.

Your iPhone is a liability. Sure you can do online banking from it, access (most of) the entire accumulated knowledge of the species, talk to your mother from the other side of the world, or book flights in with a few taps, but none of those things generate money (in fact one of them consumes it.) Your iPhone can enable you to be better at your job and may result in improved performance, but it still doesn’t generate cash. Just like a car, it depreciates.

New phones often come with lengthy contracts attached to them, an insurance policy (a better investment would be a tough case and contents insurance on your home), and multiple app’ and in-app purchases throughout the phone’s life. They soak up money like a sponge.

You need a house, but it’s still not an asset from a financial perspective. Your house costs you taxes, maintenance, insurances, and a whole host of other expenses. It’s never generating money.

If you buy a house and then double the mortgage payments, and your mortgage interest rate is 3%, you’re investing that extra money at 3%. That’s a poor performance from an “investment” perspective. If you can take that extra money and invest it a stock market portfolio, you’re likely to see 5–7% returns with little work. That’s a better place for the money.

In fact one way to buy a house that drastically reduces the costs to you over the course of your life is to use a minimum deposit to buy it, and then invest as much money as you can into money generating assets. The returns from these investments can eventually be used to pay the mortgage (and then some.) Your house is now costing you nothing, and this likely took 10 years to attend, versus the 30 you’d have been paying your mortgage out of your wages.


Money, each individual dollar, is like a micro-employee: invest them wisely and they’ll work for you 24/7 for the rest of time. Stocks generate (and lose) money. So do bonds. Businesses generate money. REITs generate money. And so on. Money is designed to make more money.

Running a business is hard, and I don’t know enough about REITs to recommend them, but stocks and bonds, bought via index ETFs, are a very simple way to create a diversified, solid portfolio of cash generating assets today.

Stop giving your money to other people in exchange for liabilities — you’re just making them rich(er).

Michael Crilly

Written by

UNIX System Automation, Maintenance & Administration

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