" He went on to explain why he encour- aged Mike and me to play golf when we were 10 years old. He said, "Golf is a game you can play all your life. Football is a game you can play for only a few years. So why not start with the game you will end with?" Of course I had not listened to him. Mike continued play- ing golf and I went on to baseball, football, and rugby. I was not very good at any of them, but I loved the games and I am glad I played them. Fifteen years after starting to play golf and beginning to in- vest, Mike was now a great golfer, had a substantial investment portfolio, and had years more investment experience than I did. At 25,1 was just beginning to learn the basics of the game of golf and the game of investing. 130 Rich Dad's Guide to Investing I make this point because regardless of how young or old you are, learning the basics of anything, especially a game, is important. Most people take some kind of golf lessons to learn the basics before playing golf, but unfortunately, most people never learn the simple basics of investing before in- vesting their hard-earned money. The Basics of Investing "Now that your two plans are in place-the plan for secu- rity and the plan for comfort-I will explain the basics of in- vesting," said rich dad. He went on to explain that too many people begin investing without having the first two plans in place, and that was risky in his mind. He said, 'After you have those two plans firmly in place, then you can experiment and learn more exotic techniques utilizing different investment vehicles. That is why I waited for you to take the time to put those two automatic or mechanical investment plans in place before I continued on with your lessons." Basic Rule Number One "Investment basic rule number one," said rich dad, "is to always know what kind of income you are working for." For years, rich dad had always said to Mike and me that there were three different kinds of income: 1. Earned Income: income generally derived from a job or some form of labor. In its most common form, it is income from a paycheck. It is also the highest- taxed income, so it is the hardest income with which to build wealth. When you say to a child, "Get a good job," you are advising'the child to work for earned income. 2. Portfolio Income: income generally derived from paper assets such as stocks, bonds, mutual funds, etc. Portfolio income is by far the most popular form of in- The Basic Rules of Investing 131 vestment income, simply because paper assets are so much easier to manage and maintain than any others. 3. Passive Income: income generally derived from real estate. It can also be income derived from royalties from patents or license agreements. Yet approximately 80% of the time, passive income is from real estate. There are many tax advantages available for real estate. One of the running battles between my two dads was what a parent should say to a child.