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You will always be poor if you don't know difference between asset and liabilities!

 How Do You Differentiate an Asset from a legal responsibility? 



Introduction Assets vs Liabilities

Wealthy people acquire belongings. Then again, the cause why the bad and center elegance do not end up wealthy is due to the fact they gather liabilities that they suppose are belongings. They leave out out on buying earnings-generating assets due to the fact first and major, they don’t recognise the difference of property vs liabilities.

However what precisely is the distinction of property vs liabilities? Consistent with wealthy Dad, it is the direction of cash float that determines if something is an asset or a liability at that moment.

Defining assets vs Liabilities

Wealthy Dad’s Definition of an Asset and a legal responsibility

What’s the distinction of belongings vs liabilities?

Asset: “An asset puts money for your pocket.”



Liability: “A liability takes money out of your pocket.”

A awareness belongings vs Liabilities

Now that we have differentiated assets vs liabilities, let us dive deeper about the subject. Humans purchase a house and don't forget it as an asset, whilst in truth it's miles a legal responsibility. And that is when confusion takes place.

Wealthy Dad especially cited, “Confusion happens due to the fact the conventional technique of accounting permits us to listing each assets and liabilities under the asset column.”

 

The truth about property vs Liabilities 

“your property is not an Asset!”

How do we differentiate assets vs liabilities on this state of affairs? In the book rich Dad’s guide to investing, Robert Kiyosaki explains how this declaration is valid thru a diagram. 

“in this diagram, we've got a $100,000 house in which someone has positioned $20,000 cash down and now has an $80,000 mortgage. How do you know if this residence is an asset or a liability? Is the house an asset simply because it's miles listed underneath the asset column?”

Let us look into the economic declaration to discover if this house is an asset or legal responsibility.




  • As you can see, items are listed only under the expense column and nothing is in the income column, which makes this house a liability.

 

Now the Question at Hand is: “How Do We Change a Liability to an Asset?”

Let’s refine the diagram.

• Now you may see that  things are delivered: “condo earnings” and “internet condominium profits”. The keyword right here is the phrase “internet”. With this, the house is now modified from a liability to an asset. 
• If you want to further apprehend the concept, here is an example from rich Dad: “Now permit’s say all of the expenses associated with this residence add up to $1,000 – which includes the loan fee, actual estate taxes, coverage, utilities, and preservation. And you now have a tenant paying you $1,200 a month.”
If we do the math, you currently have a internet condo income of $two hundred a month. Now this makes the residence an asset for it's miles setting money for your pocket.

• In a nutshell, property are earnings-generating items that growth in price over time. The best manner a residence can be an asset is that if it generates income after all costs are paid. Alternatively, liabilities are items that lower in value through the years, as a way to price you extra within the lengthy-run.

 

How Does Your Financial Statement Look Like?

Now you recognize the distinction of property vs liabilities and the cause why your home isn't an asset. So as that will help you higher recognize your price range, here's a primary economic announcement template that you may top off!

Introduction | Rich Dad Poor Dad Summary: A Quick 2-Minute Read

Rich Dad Poor Dad Summary. “The main reason people struggle financially is because they have spent years in school but learned nothing about money. The result is that people learn to work for money… but never learn to have money work for them.” –Robert Kiyosaki




Rich Dad Poor Dad played a key role in my life. That being said, I’m taking this opportunity to share the lessons I’ve learned from Rich Dad Poor Dad – for it has changed my life forever. I summarized the cashflow quadrant concept from Rich Dad Poor Dad series in a separate blog post.

 

The Lessons | Rich Dad Poor Dad Summary

Here is an overview of rich dad’s lessons:

  • Lesson 1: The rich don’t work for money. They make money work for them.
  • Lesson 2: It’s never about how much money you make. It’s how much money you keep.
  • Lesson 3: The rich focus on their asset columns while everyone else focuses on their income statements.
  • Lesson 4: Corporations are the biggest secret of the rich.
  • Lesson 5: Often in the real world, it’s not the smart who get ahead, but the bold.
  • Lesson 6: Work to learn. Don’t work for money. 

 

Rich dad’s lessons can be applied by following a series of steps that are integral to each other.  

 

  • On Financial Education: Invest in your financial education. When I say financial education, this pertains to your mindset and knowledge.
  • On Mindset: Invest a lot of time in honing your ‘money mindset’—know the right way to manage your finances, because then again, it’s not about how much money you make, it’s about how much money you get to keep, and grow.
  • On Making Money Work for You: Invest in learning about the process on how you can turn your hard earned income into passive income through real estate investment Learn about taxes, reading financial statements, the difference of assets and liabilities, etc.

The end result of these steps is freedom—and when I say freedom, it is freedom in every way possible. Are you now ready to make your money work for you through investing in real estate?

 

Conclusion | Robert Kiyosaki Quotes

One of my favorite quotations by Robert Kiyosaki is ‘Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth.’ Let me leave it at that.