A common way to explain these terms is that; Assets produce cash flow straight to our pockets while, Liabilities produce expenses from our pockets.
These terms were best highlighted by Robert Kiyosaki in 1997, an author of the book: “Rich Dad Poor Dad” It is amazing how this book has transformed a deeper understanding in the terms “Assets” and “Liabilities” and how the rich and the poor relate in terms of those key words.
In the book he had a biological poor dad and an imaginary rich dad he listened to. He explained about how his poor dad emphasized that he has to go to school so that he can qualify to get a good job
. That is how all our societies embrace after all the years we got the education we have to be rewarded with good jobs. In the real sense, a good job doesn’t mean wealth, and it’s not guaranteed, one can get fired along the line
. On the other hand, the rich dad was all about he has to get the knowledge but mostly invest on Assets that will guarantee big returns. The assets discussed from the famous book were categorized into four classes
. These included the following: • A business He was advised to be a business owner as the likes of Apple, Google, Facebook, etc. he has to own businesses that required high inventories worth making high distinctive profits.
• Real Estate business He explained what his rich dad taught him; to be both an entrepreneur in business and an entrepreneur in real estate. Due to that mix, he pays no tax and makes a lot more money.
However, this should not only be seen a one way turn;ed that he could invest in commodities such as oil, gold, silver and other precious metals can be sources of high returns.
The oil and gas industry suffers price volatility risk but despite the risk; as a dealer you cannot be highly affected regardless the volatility because at every chance you still make money because of the never ending society demand of such a commodity.
The author elaborates the darker side of Liabilities; a good example is a car. A car generates expenses like maintenance service, fuel, etc. and two or more years down the line it is going to depreciate by almost 19 per cent which will likely be sold at $12,150 or even less in the next two years, the more its kept the more the value of it diminishes slowly and becomes a liability because more money will be spent to keep it.
If you had the chance to have the same $15,000 before making a decision to get a car you may instead opted for paper investments like stocks; with stocks you are guaranteed to expect annual returns of around 7 per cent to 12 per cent which varies from $16,050 to $16,800 respectively.
The return is worth it compared to the depreciating value of a car. Even though there is nothing bad in getting a car, the point is not to get carried away mistaking it as an asset while it is a liability.
If we intend to excel in the business world; decisions are what will distinguish our ability in multiplying more wealth. Mr. Kiyosaki gives us the insight of how the rich make money work for them.
They place money in places where they are going to expect high returns. They are willing to wait for a decade as they watch every step of their cash doubling; hence their wealth grows faster. The mindset of the ordinary is to see the money grow in no time, even a month to come.
If money isn’t accounted well, it diminishes quickly. The poor buy liabilities thinking it is an asset; for instance when you buy a house while you pay a monthly mortgage; that can’t be considered as an asset anymore.
You may consider getting that flashy new car, the latest iPhone is worth it at the moment but wouldn’t you rather put your money to work and generate more income instead? What distinguishes the two classes is that the business oriented people invest their money and spend a few that is left over while; the majority group spend the wholesome and the remains are then invested.
What they put into investments is little to start with. I tend to disagree with the saying, “Money is the root of all evil” but rather the lack of money is…