Rich Dad's CASHFLOW Quadrant on top of a picture of a forrest

The “Money Makes You Rich” Myth

Why it takes more than lots of money to make you rich

At a young age, I knew I wanted to be rich. I saw my parents struggle financially and the stress it brought, and I knew that wasn't for me. I wanted to buy nice things, be generous, and enjoy life worry free.

When I told my rich dad, my best friend's dad who was a successful businessman, that I wanted to be rich, he asked, "How do you think you become rich?"

"You make a lot of money," I said confidently.

"That's partially correct," my rich dad said. "But you can make a lot of money and still not be rich." He went on to explain how some employees and self-employed people made a lot of money but weren't rich because they had low financial intelligence. They lost most of their wealth to high taxes and by purchasing liabilities.

That was too much for my young brain to comprehend. I just knew I wanted to make a lot of money. But now that I'm older and hopefully wiser, I understand what my rich dad meant. Money doesn't make you rich. Your financial intelligence does.

Why having lots of money doesn't make you rich

For example, many high-earning professionals, such as doctors and lawyers making $250,000 to $500,000, aren't really rich at all.


Because they lose so much money to taxes, their income is based on the services they provide rather than passive income from investments, and they spend their money on liabilities like homes instead of on assets that produce cash flow.

The four forces that steal your wealth

There are four things that steal your wealth: Taxes, Debt, Inflation, and Retirement. People who make a lot of money aren't necessarily rich because they lose so much of it to those four forces. High-earning professionals are some of the highest taxed in the US, don't have any investments that provide cash flow and hedge against inflation, are overly-burdened with debt, and aren't ready for retirement-meaning they need their paychecks or they're broke.

It's entirely possible, for example, that two different people each making $100,000 could have entirely different financial lives. One could be poor and the other rich.

Here's an example. Of the two people who both earn $100,000, one pays 20 percent in taxes, has a crippling mortgage, and saves money in a 401(k) that barely keeps up with inflation. The other pays nothing in taxes, owns rental properties that provide passive income that adjusts with inflation, and has a plan to use that passive income to purchase more passive income investments. Who's richer?

It's possible to make a lot of money and use the forces of taxes, debt, inflation, and retirement for your benefit-but it takes high financial intelligence.

Here's the fundamental problem for 'the rich', high-income employees: They have the highest tax burden, the lowest control over their retirement, and can sell only their time.

Move from the left to the right of the CASHFLOW Quadrant®

My CASHFLOW Quadrant® explains this simply.


Rich Dad's CASHFLOW Quadrant®
Rich Dad's CASHFLOW Quadrant illustration Employee, Small Business Owner, Big Business Owner, Investor


There are four types of people: Employees (E's), Self-Employed (S's), Big Business Owners (B's), and Investors (I's). The E's and S's are on the left side of the CASHFLOW Quadrant and the B's and I's are on the right side of the quadrant.

Those on the left side pay the most in taxes, have the least control, and will never be truly rich. These are people like blue-collar employees but also people like doctors and lawyers who are self-employed but really don't own a company-they own a job. They are victims to the four wealth-stealing forces.

Those on the right side, however, have all the tax advantages; have control over their money, business, and investments; and have the possibility of infinite returns because they know how to create money out of thin air through passive income. And they know how to use Taxes, Debt, Inflation, and Retirement to make them even richer-not poorer. If you want to learn more about the CASHFLOW Quadrant®, I encourage you to read my book CASHFLOW Quadrant®: Rich Dad's Guide to Financial Freedom.

To be on the right side of the CASHFLOW Quadrant®, you need a high financial intelligence. That means you need to continually increase your financial education. Read books, attend seminars, network with like-minded individuals, and change your mindset.

Don't settle for the trap of just making a lot of money. Increase your financial IQ and become truly rich.

Original publish date: February 22, 2016

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