The goal of most investors is to create enough passive income to cover living expenses. In his best-selling book, Rich Dad Poor Dad, Robert Kiyosaki discusses that real wealth should be measured by answering the following question: If you were to stop working today, how long would you be able to maintain your current standard of living? Of course, if you have no investments or assets that generate steady cash flow, then you would only be able to live as long as your savings would enable you. Kiyosaki's book challenges people to recognize the importance of creating passive income through investments such as real estate, businesses, and financial markets.

Dividend investing is one of the simplest and most effective ways for an investor to create passive income. Dividends are corporate profits paid out to shareholders. This method of investment will not necessarily make someone wealthy overnight since most dividend payouts are around 5%; therefore, if a person needs $50,000 a year to live comfortably, they would need to have $1,000,000 invested in a dividend-yielding stock. However, even though dividend investing will not make you wealthy overnight, it definitely has the potential to act as a wealth-building tool over the long-term.

Dividend Reinvestment Plans
Some companies that issue dividends allow investors to automatically reinvest dividend payouts into the company. This is known as a Dividend Reinvestment Plan (DRIP). DRIPs offer several financial advantages to investors.

Avoid Brokerage Fees Buying stock is not free. Every time an investor wants to purchase shares in a company, they are going to be hit with a brokerage fee, and over time these fees can add up and substantially cut into a traders bottom line profits. In a DRIP, an investor does not have to pay a brokerage fee to reinvest dividend profits back into the company. Essentially, the investor has just cut out the middle-man. This can lead to huge savings over a period of years.

Power of Compounding
When dividend gains are continually reinvested into a company, the power of compounding takes over. Einstein famously said that one of the greatest and most powerful mysteries in the universe is compound interest, and DRIPs offer investors the power of compounding when profits are continually reinvested into a company. A forex account offers similar potential.

Invest Without Paying For Full Shares
For many investors, this is the greatest advantage to DRIPs. Once an investor has purchased at least 1 share of stock and gained entrance into a DRIP, then any dividends he receives that are invested back into the company will be able to purchase partial shares in the company. This is a huge benefit because the investor is not forced to save cash to purchase full shares.

Dollar Cost Averaging
A DRIP naturally allows an investor to dollar cost average. If the stock is a solid company with long-term growth prospects, then any down-turns in the economy that cause a subsequent fall in the stock price will allow the investor to purchase stock at a discounted price; thus, the overall, average stock price he pays will be less-this is known as dollar cost averaging.

Build Wealth
This is perhaps the biggest reason why investors love DRIPs. Investing in a Dividend Reinvestment Plan, similar to currency trading, will not get you rich overnight, but it is a valuable tool to build wealth over the long-term. As long as a person has income from another source, such as a day job, then he or she does not need the dividend income and it can be reinvested.

This continual reinvesting of the dividend payout should compound over time to substantially increase the investment. Then, the goal is to eventually have enough capital invested that the dividend payout can finance a person's standard of living. Then, in Robert Kiyosaki's view, real wealth has been created.