I’ve been thinking about that phrase – Rich buy assets, poor buy liabilites – I’ve been thinking about it quite a lot. Especially since our newlywed money and finance is not in a great shape. Is the secret key to getting rich that simple – just buy assets instead of liabilities?
It makes perfect sense to put your money into stuff that pays you back – like a rental property or a stock portfolio; investing is all about putting money into stuff that will help you make more money later. But us humans are so gullible! We have a hard time saying “no” to that seductive, shiny, brand new flat screen that is way cooler than the flat screen Peter bought last month (and made rounds at the office bragging to everyone about it). So we buy it and do a little Tarzan-style victory dance in front of Peter’s desk. Take that, Peter!
According to Kiyosaki, the rich invest their money by buying things called “assets” – things that put money in your pocket like rental properties or stock portfolios. The poorspend their money on things called “liabilities” – things that are basically money-pits and never put money in your pocket. Like that flat screen we were eager to rub in Peter’s face.
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Let’s say Person A and Person B each make $4000 a month. Person A uses their spare money to open a savings account and earn interest, to pay off a rental property and earn rent, to buy some shares and earn dividents. Person B uses their spare money to buy a car, a laptop, and fix the roof on their house.
While they earn the same amount of money, in 5 years Person A will be better off than Person B, because their assets will be bringing them money and thus Person A will have increased their income.
Poor Person B.
My husband and I have been “Poor Person B” ever since we met. We try to save, but what little amount of cash we are able to pile up is soon gone. The first little pile we saved went to pay off the used car we bought. Then we saved a second little pile but it went towards our wedding. Still we didn’t quit: we saved a third little pile. Guess what happened to is?Off it went to the apartment remodel (mentioned here) that we had to do to make our home baby-friendly. And just last month we bought a furnace, a new front door and paid the annual car insurance. Sheeeeeeeesh! Basically, we keep saving and saving, and the result of all our squirrel-ly efforst is simply that we can prepare our home for the baby without getting in debt. Yep.
So whenever someone casually mentions “The rich buy assets, the poor buy liabilities,” I get a little pissed off. It makes getting rich sound so simple! The rich buy assets, and the stooopid poor people buy liabilities… WELL HEY WE ARE NOT STUPID, MISTER RICH DAD! WE BUY “LIABILITIES” LIKE A FURNACE OR A COUCH BECAUSE WE ACTUALLY NEED THEM! GAAAAAAAAAAAAAAAAAAAAAAAAAH!!!
Phew! Feel much better now! :)
Back to the topic.
It’s easy to blame the poor for their condition and say “Well, if you’d only bought some assets…”
But it’s one thing to buy assets when you have all the “liabilities” that you need (e.g. car, laptop, furniture), and it’s a totally different thing when you’ve just moved into a bare new apartment. There are certain things that you need, at the very minimum, to live a relatively normal life:
kitchen table + chairs
AC or equivalent
And there are things you could do without but if so, your life would be so much harder:
And let’s not even get started on the heavy stuff like windows, doors, roof panels, floors and so on.
It’s been 1 year since my husband and I met and this whole year we’ve tried to not waste money. We’ve made an effort to save, but it feels like we’ve made little progress.
When we moved out of his parents’ 3-bedroom apartment into our 1-bedroom apartment, there were many things we had yet to buy for the place. A microwave, furnace, curtains, new door, dresser… and we still need to buy a small TV for the kitchen, a laptop (yeah our old desktop is ready to go) and a couch.
But a microwave or a laptop doesn’t feel like progress. It feels like catching up.
We hope to be done with the “catching up” by the end of the year, and we probably will be, but then we’ll have to buy baby stuff like crib, stroller, clothes and whatnot.
I guess those are just the seed money for starting a family. One year from now, we won’t have to buy much because we will already have a microwave, AC unit, baby crib, car. And when baby #2 comes, we could just use the stuff from baby #1. I think we’re heading to a financially better place in the future. We will probably be earnign more by then, too.
Maybe then we could finally set aside some money for investing? I’ve been eyeing a thing or two for a while now.
But until then, I’ve made my peace with at. It may be true that The rich buy assets and the poor buy liabilities, but there’s another saying that’s true first: Takes money to make money.