One of those books that forever change your way of looking at things – in this case it’s personal finance. It explains why people struggle with financial problems – because they spend years in school but learn nothing about money and inestments. As a result – people follow the path of least resistance (eg. instant gratification) – become consumers and never elarn to put money to work for htem. to A topic I had little interest until reading this book, which really opens your eyes about the difference between an asset and liability, and thinking deeply why you spend money on the things you do…
An asset puts money in my pocket. A liability takes money out of my pocket. This is really all you need to know. If you want to be rich, simply spend your life buying assets. If you want to be poor or middle class, spend your life buying liabilities
Keep expenses low, reduce liabilities, and diligently build a base of solid assets. For young people who have not yet left home, it is important for parents to teach them the difference between an asset and a liability. Get them to start building a solid asset column before they leave home, get married, buy a house, have kids, and get stuck in a risky financial position, clinging to a job, and buying everything on credit. I see so many young couples who get married and trap themselves into a lifestyle that will not let them get out of debt for most of their working years.
So what kind of assets am I suggesting that you or your children acquire?
• Businesses that do not require my presence I own them, but they are managed or run by other people. If I have to work there, it’s not a business. It becomes my job.
• Stocks
• Bonds
• Income-generating real estate
• Notes (IOUs)
• Royalties from intellectual property such as music, scripts, and patents
• Anything else that has value, produces income or appreciates, and has a ready market
An important distinction is that rich people buy luxuries last, while the poor and middle class tend to buy luxuries first. The poor and the middle class often buy luxury items like big houses, diamonds, furs, jewelry, or boats because they want to look rich. They look rich, but in reality they just get deeper in debt on credit. The old-money people, the long-term rich, build their asset column first. Then the income generated from the asset column buys their luxuries. The poor and middle class buy luxuries with their own sweat, blood, and children’s inheritance. A true luxury is a reward for investing in and developing a real asset. For example, when my wife Kim and I had extra money coming from our apartment houses, she went out and bought her Mercedes. It didn’t take any extra work or risk on her part because the apartment house bought the car. She did, however, have to wait four years while the real estate investment portfolio grew and began generating enough extra cash flow to pay for the car. But the luxury, the Mercedes, was a true reward because she proved she knew how to grow her asset column.
Once government got a taste of money, its appetite grew,” said rich dad.“Your dad and I are exactly opposite. He’s a government bureaucrat, and I am a capitalist. We get paid, and our success is measured on opposite behaviors. He gets paid to spend money and hire people. The more he spends and the more people he hires, the larger his organization becomes. In the government, a large organization is a respected organization. On the other hand, within my organization, the fewer people I hire and the less money I spend, the more I am respected by my investors. That’s why I don’t like government people. They have different objectives than most business people. As the government grows, more and more tax dollars are needed to support it.”
Many employers feel that advising their workers to mind their own business is bad for business. But for me, focusing on my own business and developing assets made me a better employee because I now had a purpose. I came in early and worked diligently, amassing as much money as possible so I could invest in real estate. Hawaii was just set to boom, and there were fortunes to be made. The more I realized that we were in the beginning stages of a boom, the more Xerox machines I sold. The more I sold, the more money I made and, of course, the more deductions came out of my paycheck. It was inspiring. I wanted out of the employee trap so badly that I worked even harder so I could invest more. By 1978, I was consistently one of the top five sales people at the company. I badly wanted out of the Rat Race. In less than three years, I was making more in my real estate holding corporation than I was making at Xerox. And the money I was making in my asset column in my own corporation was money working for me, not me pounding on doors selling copiers. My rich dad’s advice made much more sense. Soon the cash flow from my properties was so strong that my company bought me my first Porsche. My fellow Xerox salespeople thought I was spending my commissions. I wasn’t. I was investing my commissions in assets. My money was working hard to make more money. Each dollar in my asset column was a great employee, working hard to make more employees…
“I like Texas and Texans. In Texas, everything is bigger. When Texans win, they win big. And when they lose, it’s spectacular.
If you really want to learn the attitude of how to handle risk, losing and failure, go to San Antonio and visit the Alamo. The Alamo is a great story of brave people who chose to fight, knowing there was no hope of success against overwhelming odds. They chose to die instead of surrendering. It’s an inspiring story worthy of study; nonetheless, it’s still a tragic military defeat. They got their butts kicked. A failure if you will. They lost. So how do Texans handle failure? They still shout, “Remember the Alamo!”
That’s why I like Texans so much. They took a great failure and turned it into a tourist destination that makes them millions.
Texans don’t bury their failures. They get inspired by them. They take their failures and turn them into rallying cries. Failure inspires Texans to become winners. But that formula is not just the formula for Texans. It is formula for all winners.”
I always make offers with escape clauses. In real estate, I make an offer with language that details “subject-to” contingencies, such as the approval of a business partner. Never specify who the business partner is. Most people don’t know that my partner is my cat. If they accept the offer, and I don’t want the deal, I call home and speak to my cat. I make this ridiculous statement to illustrate how absurdly easy and simple the game is. So many people make things too difficult and take it too seriously. • Finding a good deal, the right business, the right people, the right investors, or whatever is just like dating. You must go to the market and talk to a lot of people, make a lot of offers, counteroffers, negotiate, reject, and accept. I know single people who sit at home and wait for the phone to ring, but it’s better to go to the market, even if it’s only the supermarket.Search, offer, reject, negotiate, and accept are all parts of the process of almost everything in life.
Rich dad used to say, “The key to becoming wealthy is the ability to convert earned income into passive income or portfolio income as quickly as possible. ” He would say, “Taxes are highest on earned income. The least-taxed income is passive income. That is another reason why you want your money working hard for you. Rich dad used to say, “All a real investor does is convert earned income into passive and portfolio income. If you know what you’re doing, investing is not risky. It’s just common sense.” The key to financial freedom and great wealth is a person’s ability to convert earned income into passive and/or portfolio income.
All of you were given two great gifts: your mind and your time. It is up to you to do what you please with both. With each dollar bill that enters your hand, you, and only you, have the power to determine your destiny. Spend it foolishly, and you choose to be poor. Spend it on liabilities, and you join the middle class. Invest it in your mind and learn how to acquire assets, and you will be choosing wealth as your goal and your future. The choice is yours, and only yours. Every day with every dollar, you decide to be rich, poor, or middle class. Choose to share this knowledge with your children, and you choose to prepare them for the world that awaits. No one else will. You and your children’s future will be determined by choices you make today, not tomorrow.
A person may be highly educated mentally, but if they are not educated emotionally, their fear will often stop their body from doing what it must do. That is why so many “A” students get stuck in “analysis paralysis,” studying every little detail, but failing to do anything. This “analysis paralysis” is caused by our educational system punishing students for making mistakes. If you think about it, “A” students are “A” students simply because they made the fewest mistakes. The problem with that emotional psychosis is that, in the real world, people who take action are the ones who make the most mistakes and learn from them to win in the game.