“The main reason people struggle financially is because they have spent years in school but learned nothing about money.”
— Robert Kiyosaki
Growing up, the only money advice I received was to just save. I thought this was the only way to become rich. Just keep saving. Almost every financial advice that I received, boiled down to saving more money. But, no one told me what to do with the savings.
I thought we have to work for money to become rich. In fact, our society tells us to go to school, get good grades and end up with a good job. Because, that’s how we can earn money, right?
Once we get that job and start earning good money, we start buying things with that money. We buy expensive houses, cars, watches, clothes, phones, etc. And, we think this is the right way to earn and spend money. You might be wondering what’s wrong with this approach?
Here comes my first money lesson:
I thought this is the path to becoming rich until I read the book “Rich Dad Poor Dad” and here is my first money lesson:
“The Rich don’t work for money. Money works for them.”
— Robert Kiyosaki
Wait, what? Rich people don’t work for money, instead money works for them? This is the first money lesson I’ve ever learned and it blew my mind. The very first time I’ve read this, I had no clue what it meant. But, I was curious. I kept reading.
The biggest problem with working for money is we get used to it. We get addicted to that salary. Our lifestyle has become such that we can’t say no to that money. And, so many of us continue to live in our jobs, despite being miserable, just because we don’t know any other way to earn money.
On the other hand, wealthy people operate in a totally different way. They convert the money they earn into something that works for them. These are the ones who constantly make sure that money works for them. How? By taking out money for themselves.
What we typically do after we get our salary is pay rent, credit card bills, electricity, other expenses, etc. Before we even get our salary, the government takes its share in the form of taxes. This is the perfect example of someone working for money. Because if you don’t work, there is no salary. If there is no salary, there is no income to pay rent, bills, etc.
But how can we make money work for us?
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets.”
— Robert Kiyosaki
Author Robert Kiyosaki says if anyone wants to become rich, that’s all one has to know — buy assets, crush liabilities.
Let that sink in for a moment — rich people buy assets. This is how they make money work for them.
But wait a minute — what is an asset?
An asset is something that puts money in your pocket.
What is a liability?
Liability is something that takes money out of your pocket.
This is the fundamental rule you need to know to become rich.
We often think the things we buy are assets. We think that the house we buy is an asset, the car we buy is an asset and the phone we buy is an asset.
But Robert says an asset is something that puts money into your pocket. Just think about the expensive houses (not rental properties), cars, watches, and phones that you bought. Have any of them put a single dollar into your pocket?
Just by this definition — a house is not an asset, a car is not an asset, and a phone is not an asset.
If someone is struggling financially, it is highly likely they don’t have enough assets. I see a lot of people owning expensive houses, luxury cars, phones, watches, etc, but they can’t stop working because they can’t pay the bills if they stop. The sad part is they’re not even aware that they are struggling financially. Why? Because they own liabilities that they think are assets.
Assets and Liabilities:
“If you don’t find a way to make money while you sleep, you will work until you die. “
— Warren Buffett
An asset is something that makes money for you even when you’re asleep. Houses (not rental properties), cars, phones, and watches don’t do that for you.
Some examples of assets are stocks, real estate, bonds, etc. Assets put money in your pocket even when you’re asleep.
Some examples of liabilities are mortgage (home loan), credit card bills, car loans, etc.
I will expand more on money lessons in the future articles but here is one thing you have to remember for the rest of your life: “To become rich, have money work for you. Own assets – not liabilities.”
Conclusion:
Don’t fall into the trap of making money and spending it on liabilities like expensive houses, cars, etc. Instead, acquire assets like stocks, bonds, real estate, etc. Make money work for you. That’s the rich mindset. True wealth is created by assets. Spend money on things that will earn money even when you’re asleep.