Assets and Liabilities: The Secret Very Few People Know by Kim Kiyosaki

A Financial Education on Assets and Liabilities

It’s time to think differently about making money and enjoying the finer things in life

How many times have you wanted something — a new car, a bigger house, diamond earrings, a designer handbag — but told yourself, “No, I can’t have that” because you couldn’t afford it? Perhaps you’ve consoled yourself with reminders that “nobody gets everything they want in life” or “maybe someday.”

I once felt the same way.

For example, years ago, I found something I really wanted: a beautiful, 60-foot long sailboat. There were two problems: 1) we didn’t have the money for it 2) we knew that owning a boat was a giant liability! Or at least that’s what we thought.

The meanings of assets and liabilities

First, what’s an asset? Rich dad describes an asset as anything that puts money in your pocket regardless of whether or not you work.

What’s a liability? A liability is anything that takes money out of your pocket.

For example, let’s revisit that boat I wanted. Boats are notorious for being money pits. Aside from often steep purchase prices, you’ll have to pay for a marina slip, maintenance and repairs, storage in the winter (depending on where it’s docked), fuel, insurance, and possibly a crew if you don’t plan on sailing it yourself. But do you think that dissuaded me from my goal of owning this sailboat? Nope. I just had to figure out how to own this boat.

How to turn your car into an asset

When Robert and I got married, we talked a lot about money and how we were going to approach it together as a couple. Along the way, we came up with a couple rules that continue to guide us as we grow our wealth together.

For instance, we came up with the financial golden rule: any money in the asset column stays in the asset column (an asset is anything that, you guessed it, puts money in your pocket). Another rule that we came up with was that if either of us wanted something fun, like a sailboat, we never said, “No.” Instead, we always said, “How?”

Now, this is where we have to get creative — we had to stop thinking that assets and liabilities are opposing forces, and find a way to turn our liabilities into assets. Didn’t think that was possible? Think again!

Blurring the Line Between Assets and Liabilities

When I decided I wanted a sailboat, I began to investigate ways that would allow me to purchase the boat and turn it into an asset. Instead of just letting it sit in dock in Hawaii and writing checks every month to pay for the maintenance and the loan on it, we put the boat into a charter company. When we’re not using the boat, it’s chartered throughout the Hawaiian Islands. The money from the charter business pays for the expenses of the boat. Ahhhh, it’s so satisfying when assets and liabilities merge!

We do the same thing with our vacation house in Hawaii. It’s a beautiful house, but since we live in Arizona, we’re not there much. So, we rent that house out most of the year for thousands of dollars a day. The cash flow easily pays for the expenses of the house, and then some. Once again, we found a way to essentially combine assets and liabilities.

And the best part is that we get to enjoy the boat and the house whenever we want to, all paid for by the businesses we turned them into. Talk about having your cake and eating it, too!

Change Your Mindset; Change Your Life

At the end of the day, living this way is all about mindset. Both Robert and I think it’s terrible to tell people they can’t have what they want — what a horrible way to go through life!

By shifting your mindset from, “I can’t afford this,” to, “How can I afford this?” you can literally change your life. The liabilities you want can actually make you richer as you get creative in finding ways to afford them by creating or investing in cash-flowing assets.

I urge everyone to break free of the misconception that in order to be rich, you have to live below your means — if you live within your means, you can never add assets, and you’ll never break the chain of cutting costs and budgeting to afford something.

This is one reason why Robert and I designed the CASHFLOW board game — to teach you how to think differently about money and wealth. The more familiar you become with standard assets and liabilities, the more creative your solutions will be for ensuring you have everything you want in life. Today is the day to change your mindset about money. What is it that you really want and how are you going to get it?

Original publish date: May 07, 2015