Blog | Real Estate

The Root of the Problem In Life and Money

In life and in money, you have to know the root of your problems so they never come up again.

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My rich dad used to enjoy working in his garden. Though he was wealthy and didn't need to, he said he liked the work because it reminded him that no matter how rich you are, you're never too good to get your hands dirty. He also liked gardening because it was a metaphor for how he saw the world. "Building something beautiful takes much toil and patience," he said. "You cannot rush gardening. You must plant well, understand what you're doing, and pull all weeds up by their roots." Explaining further he said, "Many people want to quickly identify problems in their life and then cut them down. The problem is that, like a weed, they never dig up the root. So, later the same problem comes up. In life and in money, you must understand the root of your problems."

In an article written by Barbara Kiviat in 2010, The Case Against Home Ownership, she rightly identifies, in so many words, that the myth of your house being an asset has contributed greatly to our current financial crisis. "But the dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago. Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac…For the better part of a century, politics, industry and culture aligned to create a fetish for the idea of buying a house."

At the time, home values had dropped 30 percent, existing home sales had dropped a whopping 27 percent over the previous month, and housing inventories stood at 12.5 months - over twice what was considered healthy.

With those numbers, people like Ms. Kiviat were starting to realize that the American Dream of becoming wealthy through homeownership is one of the biggest lies ever perpetuated on the US public.

The true problem

Despite what we’re seeing in the real estate market today, we know that we’ve seen a fair share of problems when it comes to the housing market. It’s even considered a millstone that can potentially pull the entire economy down into a dip recession. But let's face it, the real estate market isn’t the real problem. The real problem is the fundamental lack of financial education in America. The real problem is that people don't fundamentally understand the difference between an asset and a liability. I find it hard to believe that a financially educated population that understood your house is not an asset but rather a liability would have participated in the real estate frenzy that occurred early in this decade.

Taking the lessons my rich dad taught me from his garden, the fundamental problem, the root problem, is that people don't understand how money works.

Digging up the root

I'm afraid that until we address the root of our financial problems, we'll continue to see huge booms and busts. Until we see comprehensive financial education in our schools, we'll continue to see a population of people who think their house or any other host of liabilities are assets. While it's important to identify byproducts of the problem, like the horrible state of the residential housing market, it's much more important to identify why those byproducts grow up in our financial soil—and to pull that root up mercilessly.

The Rich Dad message is one of continual financial education and of acquiring cash flowing assets over the course of your entire life. Security does not come from hoping prices go up, but from being financially intelligent enough to search for, find, and acquire solid assets that provide income every month for a lifetime. That is not easy. It is not quick. And it is not something the ordinary person can do if they rely on the education they received in school.

Building a real-estate portfolio

For those with the means and the financial literacy, now is the time to build a solid real-estate portfolio with cash flow.

My wife, Kim, started with one house in Portland, OR many decades ago. It made $20 cash flow. Today, she owns thousands of apartment units across the US and makes millions in passive income. She built her financial literacy, started small, learned from her mistakes, and is now financially free — and then some.

True investing is not a get rich quick scheme. It’s a game of financial literacy and patience, taking advantage of the opportunities afforded by the market, whether up or down, to build slowly and smartly for the future.

Tend to your garden

Today, you have a choice to do surface work on your garden or to instead get down on your hands and knees, roll up your sleeves, and begin the hard work of tending your financial garden well. While it will be hard work, it will be work that will pay off for the rest of your life. By pulling up the roots of your financial problems, you'll assure they won't come back in areas and times you least expect.

If you’re ready to start playing the game of real estate investing, Rich Dad offers many classes and coaching to increase your financial literacy.

Original publish date: September 07, 2010

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