In this simple guide on rich dad poor dad assets we will be discussing the real definition of assets and liabilities and the true meaning of getting rich.
Nearly during the last four decades, it has been noticed that the rich have gotten extremely richer while the poor and the middle class have become much poorer. And it came out that the reason lies in fake assets.
To get rich, you will be advised by the poor dad to read books while the rich dad will tell you to be financially literate. But the truth is you require both. Books and learning are necessary, as important as a strong financial education. If someone must choose one amongst them, go for financial education.
The number one rule to get there is to learn the difference between an asset and a liability. It is the only rule you need to get rich. The rule itself is a powerful source of financial education.
The truth why most of the people suffer financially is because they do not understand the difference between an asset and a liability. Some part of the reason behind this is because schools do not teach about it and some part of the reason is that people learn the concepts from the accountants who tend to make them complicated.
What is an Asset?
Property owned by an individual or corporation, deemed to have value and available to satisfy debts, obligations, or legacies. Most groups of experts and accountants have different definitions involving mathematics. But if we examine fact, it is known as an advantage if something offers value from it and leaves you with a profit.
You will see various things that can be considered assets like investment real estate, a business, items like books or art, or maybe dividends from stock and bond investments. The only thing rich people do is to focus on building their assets.
What is a Liability?
In simpler words, a liability is something that takes money out of your pocket. Commonly knowing liabilities include cars, holidays, clothes, dining out, unused subscriptions, etc.
If you take a close look at the budget of a poor person, you will come across only liabilities and no assets.
The explanation behind this, which is also an interesting fact, is that certain things are commonly mistaken as assets which are liabilities. This happens because high financial intelligence is missing in many people. They take the opinions of so-called financial experts at face value.
Examples of Rich Dad Poor Dad Assets
To get a better and clear picture of this, let us take the example of something that the majority of people overlook as an asset – their home. If you take out any traditional balance sheet today, you will see your home will be listed under the asset column.
Earlier when it was mentioned in Rich Dad Poor Dad that “Your house is not an asset”, there were a lot of controversies. But in 2008 – the starting of the Great Recession, which was caused by major defaults on sub-prime home loans, people were not making jokes on it anymore.
This is because they learned the harsh truth that various things that they are considering assets with the guidance of their accountants and finance people are liabilities, hiding behind smoke and mirrors.
Using the simple definition of assets and liabilities that we have discussed above; your home is a liability because it takes out money from your pocket each month. This happens in the form of mortgage, taxes, insurance, and maintenance costs. It anyhow is not putting money in your pocket. Only when you will be able to sell it at a profit, it will become your asset.
On the contrarily, a rental house can be considered an asset. If you are smart enough to do your due diligence accurately and collect more rent than you will be having more costs each month. The rent and expenses are distinguished by the net operating profits, and each month the cash flow into your wallet. This is the reason why it is an asset.
Rich People Does Not Work for Money
Like workers, the rich people do not work for cash in the form of wages. They invest their money on assets that bring more money to their pockets. This includes real estate, stocks, bonds, notes, and intellectual property.
The middle class and poor on the other hand, work for money and invest it in liabilities that take the money out of their pockets. This includes mortgages, consumer loans, and credit card debt.
If you want to become rich, the suggestion is to start investing in your financial education today. To start with, learn the differences between assets and liabilities.
By taking this step, you will be able to understand more about the money than 99% of the world does. This will not only be a way to getting rich and making money but keeping it as well.
It is difficult to understand financial terms if you do not have a background in the same field. However, rich dad poor dad assets are one of the ways to change your psychology to look at things differently. If you understand how expenses and income are different from each other, you can test real-life products and services and see for yourself which is a liability, and which is an asset. Do not overspend on liabilities and always measure your assets.
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