My daughter sent me a picture the other day of Robert Kiyosaki and a Rich Dad Quote.  The quote said “it’s better to work years at creating an asset, rather than spending your life working hard for money, to create someone else’s asset.”  It is a very true statement.  Unfortunately, it might be unclear to most people.  It is the word “ASSET” that causes the problem.

Asset is probably the most misused word in the English language.  That is because banks deliberately create that confusion.  It is in their best interest.  Whenever you go to the bank for money, they want a list of your Assets and Liabilities.  When they talk about “Assets” they list cash, paper investments, your house, your car that sort of stuff.  So naturally most people think that those things are Assets.  Even if you look up the definition of an Asset in the dictionary it will basically tell you that Assets are things that can readily be converted into cash.  So that makes sense of what the bank calls an Asset.  Though trying to “readily” turn your house into cash, is a debatable question.

Is there another definition of an Asset?  Definitely!!  I am not sure if Kyosaki coined the idea, but I will give him credit.  His, and my, definition is: an Asset is only something that puts money in your pocket on a regular basis.  This definition can change your life.  Absolutely for the better.

I remember a colleague of mine telling a customer that a car is an Asset.  (I was selling cars at the time.)  What was worse, is that the customer believed him.  Nothing could be further from the truth.  If you let it, a car is a status symbol at best.  It is not even an Asset to a pizza delivery person.  Especially not a brand new car.  When you buy a brand new car, the thing looses between 35 to 60% of its original value in the first 2 years.  Don’t believe me??  Go to any dealer’s lot and look at the price of a brand new model.  Now go to the used car section of the same dealer and look at the price of the same model that is 2 years old.  Note the difference in price.  I dare you.

If you put $35,000.00 into a Mutual Fund and 2 years later that same Fund is worth $20,000.00, would you think it was a great investment?  If you do, contact me, you need help.  Yes, I know, the mutual fund can’t drive you to work every day so you can pay for the car.  But, buying a two or three year old car, with some of the factory warranty still on it, can.  And it will not depreciate (go down in value) near as much.  And it will have lower payments than the new car, so you get to keep/invest more of your paycheque.  It is a very rare occasion when a Car generates more money into your pocket, than it takes out.

So why does the bank view it as an Asset??  If you finance the car through the bank, does it generate any income for the bank each month?  Yes.  The car payment, the interest on the loan, maybe even the insurance as well.  Even by our real definition of an asset, your car is an Asset to the bank.  But not to you!!!

Can we say the same for your house??  How much money does your house put into your pocket each month??  How much money does your house put into the bank’s pocket??  Even your investments should follow the same rule of an asset.  How much money do your investments put into your pocket, as opposed to, how much do they take out?

This brings us back to the quote at the beginning of this post.  Starting a business is not an over night Asset.  Most businesses take money and effort to get going, and to grow.  But there are fewer better assets than your own business.  Several posts ago we talked about the difference between being self employed, (owning your job) and being a business owner.  Being self employed is a small asset.  You still have to put a lot into the business to make it work.  Even if it is actual work, and not dollars.  Being a business owner, is when the business runs, and generates monthly cash, without your being there.  If you are working as an employee at a job, you are helping to build someone else’s Asset.  Not your own.  Since most people are in the employee category what can you do?

It is a common quote, your greatest asset is knowledge.  It is 100% true.  So use the knowledge you now have.  You now know the true definition of an ASSET, and you concentrate on buying ASSETS.  That change in thinking will change your actions, and you will be on your way to financial independence and wealth.  Understand the difference between Employee, Self Employed, Business owner, and Investor as they apply to Assets.  Before you buy something, ask yourself, is this really MY Asset?  Will this put money in my pocket on a regular basis??

You don’t have to be in just one of the four categories.  You can be an employee, self employed, and an investor at the same time.  Example.  Work in a factory, (employee) invest in Mutual Funds/Stocks (Investor), and own a rental property (business owner).  Invest part of your pay each month in a TFSA with high yielding investments, use that to buy a rental property.  Reinvest rental profits in the TFSA.  Repeat.  It is that simple.  (Rich Dad idea from monopoly.  Four green houses makes one red hotel.)

It means effort.  More than most people put in, but that is up to you.  We have all experienced it before.  Not having the time to do something, because you have to work to make the money to do it.  (Take your kids on vacation but you can’t, because you have to work to afford it.)  Imagine what it would be like to have both at the same time.  Money and Time.  That can be quite a motivator.

I would rather put in lots of time for ten years, to build wealth, so that I can enjoy the financial freedom, and time, for the next 50 years.  Much easier to do that at 20 than at 50.  But it is never too late.