IS THIS THE CORE OF GETTING RICH?
As a disclaimer, this post is mostly taken from the book Rich Dad Poor Dad. It’s a very informative book written by Robert Kiyosaki, who explains the fundamentals of wealth very explicitly and accurately defines the process of growing your own wealth.
Kiyosaki mentions that the core for getting rich lies in one simple action: acquiring assets and eliminating liabilities.
With this, one is able to earn income much faster than the poor and middle class.
So what are assets and liabilities?
People usually define assets as ‘something I own’, or ‘something of value to me’. While this is not mostly untrue, this definition is not fine-tuned to the prospects of becoming rich. Assets are things that can generate a revenue for you. In other words, assets give you money. One example could be your spare room in your house. While mostly unused, this spare room can be rented out, generating a revenue (note passive income.).
As such, your house, or rather your room, automatically becomes an asset as it’s helping you earn money.
Liabilities can be considered the direct opposite of assets. They are what takes money away from you. One common example is your car. Most of the time, your car consumes hefty sums of money in terms of petrol and maintenance, and the starting cost of the car isn’t a price to scoff at as well. Hence as long as the car is underused, it is considered a liability.
Disclaimer: Cars are not always a liability though. Cars can be used to travel to work, and the time you save traveling in public transport could be used to generate profits. In this case, a car could be considered as an asset.
So the formula is simple. Maximize assets, minimize liabilities. That’s all that there is to become rich.
If it is so simple, why aren’t many people rich?
While the process seems simple in writing, in truth many people get confused over whether an item is an asset or a liability. A sports car or a landed property may seem like a valuable asset, but if it is eating up your savings rather than generating more income, it remains nothing more than a liability.
Bottom line is, know the difference. If it seems like a good deal, take it. Acquire assets that are guaranteed to mature in the future, and get rid of stuff that does so otherwise.