" Reduce Risk Through Financial Literacy 161 Your Report Card As we ended the lesson for the day, rich dad said, "Now do you realize why I had you do your personal financial state- ments so often?" I nodded and said, "As well as analyze the financial state- ments of businesses and real estate investments. You kept say- ing you wanted me to think in financial statements. Now I understand why." "While you were in school, you got a report card once a quarter. A financial statement is your report card once you leave school. The problem is that since most people have not been trained to read financial statements or how to keep a personal financial statement, they have no idea how they are doing once they leave school. Many people have failing marks on their personal financial statements but think they are doing well because they have a high-paying job and a nice home. Unfortunately, if I were handing out the grades, any- one who was not financially independent by age 45 would re- ceive a failing grade. It is not that I want to be cruel. I just want people to wake up and maybe do a few things differently... before they run out of their most important asset: time." "So you reduce risk by being able to read financial state- ments," I replied. 'A person needs to get his or her own per- sonal financial statement under control before investing." "Definitely," said rich dad. "This whole process I have been talking to you about is the process of taking control of your- self, which also means your financial statement. So many peo- ple want to invest because they are deep in debt. Investing in the hopes of making more money so you can pay bills or buy a bigger house or a new car is a fool's investment plan. You in- vest for one reason: to acquire an asset that converts earned income into passive income or portfolio income. That conver- sion of one form of income into another form of income is the primary objective of a true investor. And to do that 162 Rich Dad's Guide to Investing requires a higher degree of financial literacy than simply bal- ancing a checkbook." "So you're not concerned about the price of a stock or piece of real estate. You're more concerned with the operat- ing fundamentals, the fundamentals that you can see with a fi- nancial statement?" "Right," said rich dad. "That is why I got upset with your being concerned about the prices on the stock market. While price is important, it is far from the most important thing in fundamental investing. Price is more relevant in technical in- vesting, but technical investing is another lesson. Now do you understand why I had you do so many personal financial statements and analyze businesses and real estate invest- ments?" I nodded. "I hated it at the time, but now I'm glad you had me do so many of them. I realize now how much I think and analyze things using mental photos of my financial statement and how what I do with my money affects my financial state- ment.