From the book "Retire Young Retire Rich" by Robert "Rich Dad, Poor Dad" Kiyosaki, rich dad discussed the three different types of money, which are:
  • Earned Money: This is money you get from your regular work. This is money that comes in the form of a paycheck or a salary. Commissions, tips, bonuses, overtime pay and salary increases fall under Earned Money. Rich dad says Earned Money is the worst kind of money to work for mainly because Earned Money is the highest-taxed among the three types of money. In fact, you have almost no control over your Earned Money since the government will take it's share of your money via withholding tax even before you receive your paycheck. Earned Money is money you personally have to work for and therefore takes up your valuable time - time which you could have spent earning more money. There is practically no leverage with Earned Money since you actually have to work to get paid, and then work again to get paid again. Earned Money is money you work the hardest for but allowed to keep the least of.
  • Portfolio Money: This is money you get from paper assets such as stocks, bonds, and mutual funds.
  • Passive Money: This is money you get from real estate, royalties from patents, books, songs, or other products with intellectual value. Rich dad liked Passive Money because this is money he had to work the least for, often the least taxed, and earns the highest returns consistently over a long period of time.
Rich dad says if you plan on retiring early and retiring rich, you have to plan on working hard for Passive Money and NOT Earned Money as most people make the mistake of doing. It is not how much money you make that matters but how much money you get to KEEP.


junlim said...

If I were to follow Rich Dad's logic about the three types of money, what I should do is :

1. Save a portion of my Earned Money, the most taxed of the three types of money, and invest that into Portfolio money. If I play the numbers right and this pans out, I can choose to invest in even more Portfolio money ;

2. Explore possible options of generating Passive money while I am still gainfully employed and making Earned money. If investing in real estate is still out of the picture, I can probably look at other lesser investment options such as investing in golf, country clubs or vacation resorts shares, buying franchise for a small food cart or kiosk, buying memorial lots or columbariums,investing in precious metals, or maybe even try earning passive money via the internet.

Whichever option I choose, the main goal is to transform much of my Earned money into Portfolio money or, ideally, into Passive money.

Linkoroo said...

Hi Junlim,

Thanks for keeping touch with me :)

I couldn't agree more with your comment. If you want a good retirement, you'll need a lot of money and you won't get that with just earned money.

If you control your spendings and save that money into a portfolio, then you're on a good path.

A lot of people live more then they can afford.