Rich Dad Poor Dad

BUY THE BOOK NOW: Rich Dad Poor Dad

You might roll your eyes when I tell you that the book that motivated us to set some goals, and actually start real estate investing five years ago was Rich Dad Poor Dad by Robert T. Kiyosaki. I admit that it’s a bit ridiculous how many different versions of the same concept have sold since then. I think they’ve diluted the power of their concept by over-selling it. Six years ago though, the messages in the original book really hit home for us.

Specifically, the two concepts that I carry with me today are:

• The Rich don’t work for their money, their money works for them, and
• Why your house is NOT an asset.

The Rich have their Money Work for Them

My parents have worked incredibly hard all their lives. Most recently they’ve been successful B&B owner/operators on Salt Spring Island, BC. They have set themselves up very well for retirement, have some money to spend now and have enjoyed being self-employed for over 30 years. What they haven’t had is freedom. Tied to their businesses 24 hours a day 7 days a week, until recently they had only taken a handful of vacations in their lives.

After reading Rich Dad Poor Dad my dad said to me, “We have been buying ourselves jobs instead of buying businesses”. At the time, I had been working for less than two years, and already realized it was going to be a long life of “punching my time card”, if I didn’t make a plan to get my money working for me. That is when Dave and I set out to figure out some ways to create income streams that didn’t require our attention every day. Neither of us was prepared to start a business, so we decided to build wealth while working for “the man” as Dave calls being employed. The objective, is and always was, to become financially free. We are working to be at a point where our assets make us enough money that we only work because we want to.

Your house is NOT an asset

This concept has been the subject of many debates in the media and amongst our friends and family, but it really made sense to both of us. The essential concept is that assets generate income, liabilities generate expenses. “The rich buy assets. The poor only have expenses. The middle class buys liabilities they think are assets. (p.81)”

The enlightening concept here is that as a homeowner that works, you are making everyone else rich (the owner of the company you work for, the government, and the banks that loan you money to buy your “assets”). If instead of becoming a homeowner, you bought an income producing asset (stocks, bonds, real estate, intellectual property), you would increase your income, decrease the amount you pay the governement (in some cases), and your financial “cycle” would be generating cash instead of generating expenses.

Most of us get a raise, then think about buying a bigger house. A raise means more money for the government. A bigger house means a bigger mortgage, which means bigger payments to the bank (liabilities). A home, we’ve noticed, also means many trips to Home Depot, Home Outfitters, Sears and other stores to make your home nice. If you have recently changed from renting to owning you will likely have noticed how many things you suddenly “need” to do to your house or buy for your house. It’s a never ending cycle of expenses.

So, does this mean you shouldn’t own a home? No. What it’s about is awareness – don’t fool yourself into thinking that your home is an asset just because the rules of accounting say it is. Your home does not create income for you and your family, it creates expenses.

For us, Rich Dad Poor Dad got us into real estate early in order to begin getting our money working for us. We bought an investment property before we bought a home. But, the second place we bought was a small condo for us. We would rather pay down our own mortgage than someone elses. We have since lived in three places we have bought, and they have always been homes below our means. We put the rest of our money to work for us. We do this knowing that our home is a liability, but one that we have chosen both for lifestyle and financial reasons.

Published March 22, 2007

**April 3rd, 2009 Update: Check out the article celebrating Rev N You’s 3 Year Anniversary by Julie Broad called: The Day We Became Real Estate Investors. It’s a tribute to the lessons this book taught us**