Educate yourself about finances, identify real assets, and invest in them

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The rich become rich by making their money work for them. Instead of spending all their income on fripperies and luxuries, they invest a portion of it in assets of various types. And then, rather than working for money, they let their assets make money for them. 

But let’s not get ahead of ourselves – when we left off, Robert was still just a kid, and the word “asset” didn’t belong in his vocabulary. But Mike’s dad, the rich dad, was about to change all that.

One day he sat the boys down and explained to them that the rich buy assets, whereas the less well-off buy liabilities – often in the mistaken belief that it is, in fact, assets they’re acquiring. In truth, he explained, an asset is anything that adds money to your wallet. A liability, on the other hand, is something that takes money away. This differentiation is very important, and not many people get it right. So let’s look at an example.

A house is often considered an asset, right? But actually, it’s one of the biggest liabilities you can have. Buying a house often means working your entire life to pay off a 30-year mortgage and property taxes, meaning it takes money out of your wallet. 

A house bought with a mortgage works against you in two ways: First, you’re guaranteed to have a massive expense taken away from your income every month – for the next 360 months, and this is a tell-tale sign of a liability. Second, those 360 payments could have been invested in way more lucrative assets that put money in your wallet.

Rich dad phrased the lesson as simply as he could for the two boys: “If you want to be rich, all you have to do is identify true assets and buy them. Spend your life buying liabilities, though, and you’ll never make it.”

Rich dad explained that a poor person’s salary goes straight to covering immediate expenses, like rent, tax and food. A middle-class person’s salary needs to cover similar expenses too – as well as liabilities like a mortgage, school loans, credit cards, and other forms of debt. 

But rich people? Instead of needing a salary, their assets bring in enough money to provide for them and often leave them with enough to invest again – like stocks, bonds, or real estate you rent to tenants. The result of that re-investment is that their income goes up once more, meaning that the rich keep getting richer.

This is so important, I am goning say it one more time: If you can keep your liabilities and expenses low, you’ll be able to invest what’s left over in assets – and have your money work for you. Do that, and before long you’ll find yourself amassing a small fortune.

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