Words have the power to make you rich -- or keep you poor. For example, you have to know the difference between an "asset" and a "liability." An asset is something that puts money in your pocket, and a liability takes money from it.
Take your house, for example.
"Our house is an asset," my poor dad would say.
But, my rich dad saw things differently. "Your house is not an asset, but a liability," he said.
You see, even though my poor dad thought of his house as an asset, the fact is that every month it took money from his pocket via mortgage payments, utilities, and upkeep.
Now my rich dad owned several houses. But instead of depleting his wallet, those homes were rented out. They generated enough income to cover his expenses -- with money left over. That's a true asset.
Now or Later?
In addition to "asset" and "liability," there are two other very important concepts you need to understand: "Cash flow" and "capital gains."
One of the reasons I was able to retire at age 47, and my wife, Kim, at 37, was simply because we had enough cash flow coming in (primarily from our real estate investments). It wasn't much -- about $10,000 a month -- but we only had about $3,000 in monthly expenses. That left us with $7,000 a month to do with as we pleased.
On the other hand, capital gains are when you buy a stock for a dollar, and it goes up to $10 so you make $9 a share. Or, you buy a house for $100,000, and it appreciates to $150,000. You sell it and make $50,000.
One of the reasons people do not become financially free is because most of them are focusing on capital gains rather than cash flow. Chasing capital gains alone is gambling -- not investing. Want proof? You don't have to go back very far to find it: Between 2000 and 2003, millions of investors lost trillions of dollars in the stock market.
"When you invest for cash flow," my rich dad said, "you're investing in a money-back guarantee. If you invest for capital gains, you invest in hope. The biggest thief of all is hope."
Most retirement plans are based on hope and promises stretched over many years. That makes very little sense to me, yet it seems to make a lot of sense to the millions of investors who are hoping the money they expect will be there at age 65.
There's nothing wrong with capital gains. I would like my properties and stocks to go up in value, but I don't play this game that much. My primary focus, like that of most successful investors, is cash flow -- not capital gains.
The key to financial intelligence is how to use both cash flow and capital gains to grow wealthy. So many people are not successful, because they're generally focusing on only one of the two. The majority is focusing on capital gains.
In my opinion, one of the primary reasons people invest in tomorrow, rather than today, is simply because they think they cannot find or afford an investment that pays them today. As a result, they often become believers in tomorrow. These are the people who often fall prey to financial predators selling dreams of the future.
As my rich dad said, "An investment needs to make money today and tomorrow."