Psychology of Money: 14

Following on from yesterday’s peek at Rich Dad, Poor Dad, the main idea rich dad emphasizes to his son is the difference between an asset and a liability. In yesterday’s explanation of how people become/stay debt-ridden, liabilities (like a house) are treated like assets, when they aren’t. The author summed up the situation like this:

The rich buy assets

The poor only have expenses

The middle class buys liabilities they think are assets

Above is the illustration the author uses to compare the cashflow of his two dads. Poor dad’s finances are on the left, rich dad’s on the right.

So what exactly is an asset, then? Rich dad provided a list:

  1. Businesses that he owns that don’t require his presence (since that would be a ‘job’)
  2. Stocks
  3. Bonds
  4. Mutual funds
  5. Income-generating real estate
  6. IOU Notes
  7. Royalties (from IP etc)

Basically anything that “has value, produces income or appreciates” for which there’s a market

The author’s parting advice is that it’s only worth overcoming the laziness, fear and cynicism that keep most of stuck in poverty thinking if we have a very strong reason to want to amass wealth – otherwise it’s all going to seem like too much hard work.

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