I have spent the last week or two immersed in this Rich Dad Poor Dad book by Robert Kiyosaki, and I am loving it! I am about halfway through the book and yes I know, I am a slow reader but hopefully that means I can soak in the content better. It has touched on some real fundamental concepts that I hope I stick to all my life. To keep today’s lessons as simple as the concept itself, today’s lesson is to understand, then purchase assets.
Now before you get turned off by the jargon and perceptions of this word, remember that I am a 19 year old that could literally be doing anything with my time right now. I love games and things that keep me interested, so surely if I can enjoy spending my time learning this then it can be interesting and useful to you too so give it a shot!
This lesson is extremely simple and makes the game sound easy. The definitions go like this:
Asset – something that puts money in your pocket
Liability – something that takes money out of your pocket
This is financial literacy right here. It’s very simple, yet I can see how people could fail to comprehend and apply this. Based on my accounting knowledge to date, an asset was anything over $500 that would have a useful lifetime beyond a year or something along those lines (don’t test me on this!). Instantly I can see the disconnect between the knowledge education has given me versus the financial literacy I am picking up now. Understanding a theoretical perspective only works on paper, but when it comes to managing your own money and the physical bank account you see on your phone every day, this new concept makes more sense to me.
For example, my initial understanding would make me classify a vehicle as an asset, but the reality is that I never see a car putting money in people’s pockets, right? Even my mum knew this, she once said to me “Nathan, if you want to save your money there are two things you need to avoid, one is a car and the other is a girlfriend!”. There are probably some deeper lessons in there for another day, but the point I am making is that you don’t need to be some specialised accountant to understand that cars cost money to run. We could get caught up in its resale value or the possibility of leasing it, but in the end simply owning and driving a car in life results in costs, meaning money is coming out of your pocket…. meaning it’s a liability to us.
The crazy thing with this concept is that owning a house can become a liability!
I don’t own a house but I have a feeling that this comment won’t go down well with the average homeowner. Your house is considered one of your main lifetime assets, right? How can this kid call it a liability? The answer is on your bank statement every fortnight or month in the form of a payment, which comes out of your pocket!
I understand that a house most definitely can be an asset if you rent it out or sell it. Also, you must remember that I am the average university student who doesn’t have access to that sort of moolah (capital) to get a house without a hefty mortgage. So even when you pursue renting out properties, the mortgage payments swallow up rental income and a lot of your return is based on the hopes of the house value increasing. I know some people do play that game and succeed and it does become an asset because they claim the value and get money in their pockets. But the reality is that there are many everyday couples and families who simply buy a house to live in, who aren’t constantly evaluating their house value and deciding when to sell. In these cases, the reality is that money is constantly coming out of their pocket, yes a portion is going towards the value of the house, but it’s still an outflow if you check that bank app on your phone.
An interesting point here is that the classification of an item can change depending on how you use it. For example, if we wrote on a piece of paper that cars are assets, it doesn’t matter what we do with the car in reality, the words on paper won’t magically change. Whereas if we taught people a more realistic, simple yet flexible way of understanding assets, then we could clearly see that if we use the car in certain ways it can become an asset. To me, this perspective aligns more with how things work in real life, which is that depending on how you use things, anything can be a blessing or a burden. Before I get too far in and start over analysing this, let’s jump into the next piece to the puzzle.
Now that we have a clear and realistic understanding of what an asset is, the next step is to simply collect more of them. I have a little bit of knowledge on investments, portfolios, shares and so on, but those are big words that can put people off so I am sticking to the concept for now. I’m guessing there will also be a reality layer on how to purchase assets and I’m sure I will cover it in the future, but for now, I want to share my thoughts on how this works. So here is my thought process:
“Since assets put money into my pocket, if I keep on collecting more assets then more money will be flowing into my pocket”.
Sometimes a childish view can help highlight the simplicity and meaning behind something, which in this case is a simple concept of re-investing. Making money from an investment and putting it straight back into the investment. This will not only make your gains bigger but will also cut down the time it takes to progress towards goals as the inflow of money will grow larger earlier on. The goal is that you can grow this sort of structure into your life to the point where the asset is putting enough money in your pocket to replace you trading your time for money (your job). Even if there are slower periods, if the overall trend is positive then there should never be a reason for us to stress because your inflows will only keep growing. This idea gets me so excited and drives me to try and achieve it as early as I can because the earlier I get there the more time within my life I get in freedom, hence the re-investment strategy to start off.
Using all the prior lessons I have learnt around characteristics such as resilience and building habits, I can see that if I match those up with this knowledge it would be a very strong combination. For example, if I build the habit and consistency of putting all my resources into these assets, and even putting the money from assets back into itself, I can’t see how this process could fail. The fun portion of purchasing assets is that they could potentially replace the need to work itself. I don’t know about you, but that gets me very excited and gives me great hope that I truly can have the freedom to do amazing things in the future beyond working a safe job.
So in conclusion, here is today’s key take away points:
- Re-define your understanding of assets
- Purchase assets until they purchase themselves
