How to become a Millionaire | Money Tips |
To become a millionaire, you need to understand the difference between Assets and Liabilities.
Most people struggle financially because they do not know the difference between an asset and a liability. Now, What is an asset and What is a Liability?
Robert Kiyosaki in his famous book "Rich and Poor dad " says an Asset is something that puts money into your pocket whereas liabilities take money out of your pocket. As simple as it gets. Remember Assets put money into your pocket whereas liabilities take money out of your pocket.
Now since you know, what is an asset or a liability, let me do a quick test of your financial skills.
Is the below an Asset or liability?
This is not an asset. This is a liability. Because when you buy a car, you have to incur many costs such as fuel costs, repair and maintenance costs, registration, insurance, parking fees, toll fees, and so on. You see, the money is going out of your pocket. On top of that, the value of your car depreciates as it gets older. So unless you are renting the car or using it for any business purpose that generates income that is more than its maintenance cost, then it's an asset. Else in most cases, it's a liability. I am not saying that don't buy a car. I am just saying don't term it as an asset. It's a liability.
Is the below an Asset or liability?
Most financial Planners and your bank would say your house is your greatest asset. If you have a house, that you live in, then it can’t be an asset because instead of putting money in your pocket, it takes money out of your pocket in the form of the maintenance cost, repair cost, property taxes, and insurance. This is even more true when you buy a house through a home loan, then every month a huge chunk of money goes out of your pocket to the bank. That too for 30-20 years. In such a case, it’s a bank asset, not yours. Again, I am not saying don’t buy a house. I am just saying don’t call it as an asset. It’s a liability unless you have a house that you rent out to tenants, then it’s an asset because its earning income for you.
Let me share a short story with you!!
Ramesh
and Suresh is two good friends. They both work on the same post and get the same
salary. When they both get the salary, Ramesh would spend that salary to buy
new clothes, new gadgets, a new bike or car. All this would make him feel rich.
But he did not know all these are nothing but liabilities.
On the other hand, Suresh will buy these things only when it's completely necessary. Suresh would save the money to buy assets like Stocks, Bonds, Real estate or he would invest in learning new skills that could help in the future to make money. Few years after Suresh became a millionaire whereas Ramesh kept blaming his low salary for his reason to be middle class.
So,
guys, the rich become richer because they focus on acquiring assets whereas
Poor & Middle class spends on liabilities that they think are assets. An
important difference is that rich people buy luxuries at the last, while the
poor and middle tend to buy luxuries first. Hence
we all need to shift from a consumer mentality to Investor Mentality.
Here
are the Assets that you need to focus on acquiring:
- Businesses: Robert Kiyosaki says, "Rich don't work for Money, They money work for them. Become an entrepreneur. Start earning income through businesses.
- Income Generating Real Estate: As I said the house is not an asset. But if you rent it out and earn income, it becomes an income-generating asset.
- Paper Assets:
- Commodities:
Anything in the world that that has value and that earns income for you, it's an asset for you!
So guys, if you want to become rich, simply spend your life buying more Assets. If you want to become rich, become financially literate!!
Money without financial intelligence is money soon gone.
Note: This article is inspired by the book "Rich Dad and Poor Dad!"
Comments
Post a Comment