Quite a title, right?
Well, statistically most people WILL always be poor. Although not in the way that you might think…
It’s not just about the money you’ve got in the bank or your income.
I’ll get to that in a minute. First, let me ask you a question…
(If you’d rather watch than read, here is the video version of this article)
Out of these 2 people, who would you say is richer?
First, we’ve got Jenny.
- She’s a high-flying executive who makes over $100,000 a year
- She drives around in a fancy BMW X6
- She lives in a massive house in suburbia (6 rooms, swimming pool, etc)
In other words, she’s the definition of success – at least society’s definition!
On the other hand, there’s Patricia.
She’s the opposite to Jenny:
- She’s a teacher who earns $40,000 a year
- Drives a reasonable and cheap Toyota Yaris
- She lives in a small, rented flat in the city
To the untrained eye, she’s just an average person – nothing to call home about.
Here comes the important bit…
What if I told you that Jenny was actually poorer than Patricia?
Being rich or poor isn’t about how much money you’ve got in the bank. It’s a state of mind and the decisions that come with it.
Assets vs. Liabilities.
This definition of a rich person vs a poor person comes from one of my favorite books: Rich Dad, Poor Dad by Robert Kiyosaki (seriously, read it).
The poor work for money.
The rich have money work for them.
You may be thinking:
“Wow, this sounds cool – how do you make your money work?!”
You buy assets. It’s as simple as that.
“Ok, but how do I know what assets are?”
Well, the definition in the book, which I love, is this:
Assets put money into your pocket, while liabilities remove money from your pocket.
So assets are things like:
- Stocks
- Bonds
- Rental Property
- A business
These are all vehicles which will put your money to work and make it grow and grow.
Then there are liabilities:
- Your car, mobile phone, and gadgets
- Your debt
- The house you live in (controversial!!)
Even though big things – like a car – hold value, they depreciate over time. They lose money and also cost a lot of it just to run and maintain.
So even though they’re referred to as “depreciating assets”, they’re going to take money from you, and are therefore a liability.
Now, the subject of the house or property you live in is a controversial one. Most people see it as an asset because it can go up in price, but in reality, it’s likely to cost you more money than how much it appreciates (think taxes, repairs, redecorations , mortgage payments, interest on said mortgage…)
I’ll be writing a lot more about this subject (and about how renting isn’t necessarily worse than owning) in future articles & videos, so stay tuned 😉
Going back to the earlier example, Patricia could very well be richer than Jenny.
She has way fewer liabilities taking money from her and even some stocks that she buys with the money she saves every month.
Well done, Pat! 🙂
Jenny, despite her large income, big house (plus big mortgage) and luxurious belongings, only has liabilities. She hasn’t got a single asset that’s putting her money to work…
Here’s another great piece of value form the book:
“Poor people buy liabilities. Rich people buy assets. The middle class buy liabilities that they think are assets!”
Build Your Assets!
Does this mean that liabilities are always bad?
No!
There is a time and a place for luxuries. They can make our life happier when bought in moderation.
The important thing is to prioritize building assets.
You do this in 3 steps:
- Spend less than you earn – always
- Buy assets with this, such as my favorite kind if assets; dividend growth stocks
- Keep doing this until the income that your assets produce surpasses your expenses
If you want to get started with dividend growth investing, you’ll find my free course below 🙂
Change Your Mindset
Let’s get real…
Chances are that you have more liabilities than assets – it’s statistics.
That’s a surefire way to stay poor, which is where most people are headed. And then they get to retirement age and are forced to survive on a measly state pension during the rest of their lives.
Now, if you want to be rich…
If you really, truly, absolutely desire it, you have to start (or continue) building assets.
As the Nike marketing team would say…
It’s not what most people do, so it’s definitely harder to do. There isn’t as much information about it out there as there is about buying the perfect set of golf clubs!
But if you buy assets that grow your money, you’ll be in a much better position than most people over time.
In my opinion, the best assets to own are:
- Your own business
- Dividend Growth Stocks
Starting a business has huge earning potential yet requires a lot of work…
Dividend growth investing requires little work (to start with, then very little) but has huge money-making potential because it lets you use the power of compound interest.
“Ok. I want to invest but I don’t even know where to start…”
The best place to get started is by checking out my free guide on investing.
It will get you started on the path towards wealth, passive income, and, most importantly, freedom.
It’s pretty good 😉
The sign-up link for more of your dividend info isn’t accepting my email (or any of my emails) — it says invalid email, but it’s not.
The link will not accept my email address
Hello, Ricard! I really enjoyed reading this post. Robert Kiyosaki’s Rich Dad was one of the first books I read that explained the difference between assets and liabilities.
Unfortunately, I did not learn my lesson and ended up purchasing expensive, depreciating assets anyway.
Take care.
-Jerry from Peerless Money Mentor