It's Rising Time!. Kim Kiyosaki

A liability is something that takes money out of your pocket.

      You can see the dilemma. Most would list their Mercedes as an asset or something of value. We, however, would list the Mercedes as a liability because every month it takes money out of your pocket. “But it’s paid for!” you argue. The car loan may be paid for, but what about gasoline, tune-ups and repairs, and insurance?

      The biggest fight we get is when we tell people your home, your personal residence, is not an asset. We received a lot of flack for that, especially when times were booming and people were taking out loans against their home, sometimes two or three times. It wasn’t until the real estate market crashed and people found out that they owed more on their house than it was worth before they started to understand this principle.

      The problem with people calling their liabilities assets is that they believe they are financially better off than they really are. When the economy turned, many people were forced to face reality. They are now realizing what they have and how long they actually can survive financially.

      This is why the concept of “net worth” means very little in the real world. When accountants calculate your net worth, they list everything but the kitchen sink. In most cases, to have the dollar amount your accountant attaches to your net worth, you would have to sell just about everything you own—at whatever the market will bear at the time.

      This does not mean you shouldn’t buy a house or a BMW or a new Cartier watch. It just means you shouldn’t fool yourself into thinking that your liabilities, items that take money out of your pocket, are assets.

       Pocket Science

      Assets and liabilities are not difficult to understand. Many people have commented that “it’s not rocket science.” And it’s not. I think of it as pocket science—specifically “put-it-in-my-pocket” science. So as you pursue your financial goals, see, feel, and hear that money flowing into your pocket.

       A Different Focus

      Here is the revelation I had when looking at the income statement and balance sheet.

      The key to financial well-being is to focus on acquiring assets.

      I was always told to focus on the income column. I was taught to get a job and work hard and keep getting pay raises. Or if I worked on an hourly basis, I should put in more hours or increase my hourly rate. The focus was always on income, specifically ordinary earned income—increasing my salary, wages, or commission. As long as I put my focus and attention there, then I would be working hard for that income all my life.

      The lights came on when I realized that the key to financial well-being is not to focus on acquiring income, but to focus on acquiring assets.

      When I made that connection, life became easier, both in my personal financial life and in our Rich Dad Company business. I focused on acquiring assets personally and also focused on the assets we were building within our company. Yes, our books and board games are assets because every month those products generate cash flow in sales to the company and royalties to me and Robert. But the question we began asking throughout the company was: What new assets are we building today? It is simply a different way at looking at the world.

      Let me tell you about our new venture, an asset-in-the-making, into digital games… and introduce Nicole Lazzaro.

       Nicole is extremely smart and talented and is recognized as one of the top women in the world of digital games. She owns a consulting company and her expertise is in demand by well-known, influential companies all around the world.

       She and I were having breakfast one morning, and she pulled out her iPhone to show me a new game she was developing. She was really proud of this game. She said, “In my consulting business XEODesign, my clients hire me. I love what I do, and I love my clients. They want my knowledge and experience to help them make their games more fun. However, I only earn money when I work for them. So I saved up for several years to self-finance an iPhone game called Tilt World. This is my first asset that puts money in my pocket!” she declared triumphantly. “For me, having my own assets gives me the financial freedom to pursue my own creative designs and dreams.”

      You see, a job, even if you are the owner of the company, is not an asset. You’re the one doing all the work. A savings account may not be an asset if you’re paying more in bank charges than you are collecting in interest. If that’s the case, then it’s a liability.

      Carrie, a woman I’ve met a few times, overheard me talking with my friend about assets. She jumped into our conversation and said, “I’m so fortunate. I just received a big asset, a large inheritance from my uncle.”

      My friend asked her, “What are you going to do with it?”

      She said, “Well, the first thing I’m going to do is take 20 family members and friends to Hawaii for two weeks. First-class hotels, yachts, whatever they want. I’ve budgeted about $300,000.” Our jaws dropped open.

      “And then what?” my friend just had to ask.

      “After Hawaii,” she said, “I’m going to start looking for a new home with a big swimming pool.”

      We smiled, wished her well, and moved on. Even an inheritance may not be an asset.

      The strategy to achieve infinite wealth, where the cash flow coming in is equal to or greater than your monthly expenses, is very simple:

       Acquire assets that give you cash flow.

      It’s no secret that wherever you put your time, energy, and focus will grow in your life. So if you want to achieve your financial dreams, you may want to put your time, energy, and focus on acquiring assets.

       Asset-Column Tip

      Here is one rule you may want to adopt that Robert and I have held to since that first two-bedroom, one-bath house. Once a dollar (or a peso, euro, yen,… ) goes into the asset column, it never leaves the asset column. You may sell an asset, but that money then buys another asset. Too often I hear a woman say, “I bought my first asset!” only to learn that, one year later, she sold it to buy a new house or car for herself. So I’ll say it again:

       Once a dollar goes into the asset column, it stays in the asset column.