Cover Your Assets

Did you know you can spend money to make money? If you didn’t, you’re probably spending money to spend money. The difference in those two ideas is the difference between an asset and a liability.

Rich Dad, Poor Dad, by Robert Kiyosaki, may be over 10 years old now, but his concepts are timeless. What separated Rich Dad from Poor Dad? Financial intelligence. Kiyosaki’s underlying principle is that financial education is paramount to building wealth. Seems simple, right? It is actually. The problem lies in where the financial education originates.

Where are we being taught about money and how it works? Our school systems? At home? By credit card companies and high-interest marketing strategies? Kiyosaki rightly says that “money without financial intelligence is money soon gone.” It doesn’t matter that someone makes $300.000 a year. If he is financially illiterate, then wealth constantly eludes him. Money doesn’t solve problems; intelligence solves problems – and makes money.

Kiyosaki provides six helpful lessons, but understanding one concept can begin to establish that financial intelligence. *Know the difference between an asset and a liability and buy assets.* The definition of an asset is anything that generates income.

Does your car generate income? I don’t mean does your car get you to your job – I mean does the actual existence of your car generate income. No. In fact, the existence of your car generates expenses. You must spend money to put gas in the car and keep it maintained and insure it. Therefore, your car is a liability.

Assets can come in many different forms, but Kiyosaki often uses real estate. Owning a rental property (with tenants, of course), generates income and builds wealth. Those tenants are paying the mortgage on a home that can later be sold or that continue to generate the revenue of the rent paid. However, your own home is not an asset but a liability because again, you must pay money to heat it, cool it, light it, fix it, insure it, etc. And don’t confuse equity with asset.

Kiyosaki’s advice can be summed up in 3 points. Know the difference between an asset and a liability. Then, learn to recognize an asset when it presents itself. And finally, take action. The well-educated will be able to capitalize on opportunity whereas the uneducated will not be able to even recognize the opportunity.

If you spend money to make money, you’ll be well on your way to establishing – and maintaining – wealth.