Never confuse an Asset and a Liability
I’ve recently re-read Rich Dad, Poor Dad. I was actually looking for a different finance book and this one fell on me so I considered it an omen :) The book is pretty straight forward read which gives you a peek at the perspective of a business man who is trying to educate his son and sons friend in how to treat money.
While the book isn’t exactly life changing it is a worthwhile read and contains a number of well explained nuggets, the best example and the one that stayed with me from my first reading about four years ago is the comparison between a “rich” and “poor” mans balance sheet.
While a poor man gets his money and spends it on bills, car costs, home costs etc, which the author considers to be liabilities, a rich man will try and purchase assets, things that will bring in some return these assets can then be added to a list of incomes and the extra money allows you to then purchase more assets; creating a virtuous circle.
While this may sound simple you’d be surprised to know how few people actually think about this. The other interesting part of this example is how the author defies conventional wisdom and lists a house as a liability rather than an asset. For the full story of why pick a copy of the book up, it’s worth the investment of a couple of evenings reading.