Friday, November 09, 2012

Buy Assets That Put Money In Your Pocket

Robert Kiyosaki recently tweeted out a couple thoughts I felt were worth repeating. The first one said this:
It's a little extreme to say it's "only helpful", but I tend to agree that buying assets is the best use of your money after you take care of your basic living needs. I'm sure we all have different definitions of basic living needs, but that's not the point. The question is what should you do with your extra money at the end of the month? Kiyosaki's recommendation is to purchase assets.

Note: If you still have consumer debt you're paying off, you don't have any extra money because it should all be going towards that. That's our current situation with student loans, though not technically consumer debt, the interest rates are now high enough it makes sense to tackle them.

So what is an asset?
Got it. Assets are anything that puts money in your pocket. Here are some examples:

Businesses (via stocks or wholly owned): Assets
Royalties (such as from a book): Assets
Rental Property: Assets

Your home: not an asset
A car: not an asset
Video games: not an asset

I want to be clear: I'm not saying non-assets, also called liabilities, are bad. Believe me, we love our dog despite his financial liability. The goal should be to purchase these liabilities with assets. That's what we did with our dog. You're probably doing it too.

If you think about it, that's what you're doing when you save for retirement: buying assets in the form of stocks so that one day you can live off that asset. Unfortunately, many people save so little that it takes them until they're 65 or older to accumulate enough assets to pay for their level of living.

If we could learn to enjoy life on less, it would create a double benefit: We would be able to save more because we're spending less, and we wouldn't need to accumulate as many assets because the costs it needs to cover would be less.

Kiyosaki's plea is to stop buying liabilities and personal effects that you don't really need. You don't need to get radical and make huge changes. Instead, he wants you to simply be more purposeful with your spending and focus on buying assets. He says so in a Facebook update:
The good news is that you don't have to start your own business to find success. Keep your job, but start buying real assets, not liabilities or personal effects that have no real value once you get them home.
So that's my encouragement today. Try some experiments on living with less. Keep it fun. And then invest the money you saved into assets. Start with funding your retirement account and then expand from there.


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