Who’s ready to design a life they love, travel the world, and afford things they never dreamed were within reach?!?
YES! You can do this! But let’s be real… this takes money, right?
Good news! Designing your dream life is possible when you use the money you already have efficiently and effectively. Getting out of debt is step one, but going beyond that takes a little more strategy. And while you may not be the next Bill Gates, that doesn’t mean you can’t use the same concepts the wealthy use to get ahead. So, let’s take a look at one thing rich people do really well – they put their money to work.
So, you’ve probably heard the phrase “put your money to work,” but what does that really mean? Put simply, it means using the money you have to make more money. Unfortunately, the average American struggles with this. Most of us go to work, earn a single paycheck, buy whatever we want, and save what’s left… which is often nothing. Here’s where we get it wrong.
What wealthy people do better than anybody is this: They use their money to purchase assets while – at the same time – limiting their liabilities. This creates multiple streams of income that can be used to invest in even more assets. By doing this, wealthy people continually use their money to make more money.
In his classic book Rich Dad, Poor Dad, Robert Kiyosaki explains why he believes people struggle with their money. He states that the poor use their limited funds to pay expenses and have nothing left. Middle class individuals use their money on things they think are assets but are really liabilities, creating more expenses which keep them stuck.
On the other hand, rich people use their money to invest in assets first. These assets are often residual income streams, helping them to earn more money without much effort so their wealth grows larger and larger.
Yes, Kiyosaki paints with a wide brush, and we all know there are exceptions…but the point remains. Wealthy people become and stay wealthy by investing in things that make them more money. They use their funds efficiently to buy assets and build more wealth.
You can do this too. Start thinking wealthy. Whenever possible, purchase assets and limit liabilities.
Assets vs. Liabilities
That sounds so simple right? But putting it into practice isn’t always so easy.
Let’s start by defining the difference between assets and liabilities. Typically, assets are considered to be items that have value. This means they can be sold to cover debts if needed.
While this definition works well on a balance sheet or for determining net worth, it’s too broad for our use. When considering true assets, think of them this way: Assets are items that make you money. They either create an income stream, grow in value, or – ideally – both. This could include a business, a rental house, possibly a stock, and more.
Liabilities are typically thought of as expenses. Again, the definition is a bit too broad. Instead, it helps to think of liabilities as anything that costs money but doesn’t make money. This includes things like your monthly utility bills, consumer debt, subscription services, and more.
Why Purchasing Assets Is Important
When you purchase a liability, that money is gone. It’s spent. The power of those dollars to earn more is gone forever.
But, when you purchase assets, that money continues to multiply. You can use that money over and over and over again to make more and more money. Even when starting small, those dollars eventually snowball into a money-making machine.
Here’s the cool thing – you’ve already started learning how to do this. By tracking your spending and starting a budget, you’ve begun cutting expenses you don’t need. Now, you can put that money to work by purchasing assets that will make you more money!
How Do I Know What’s Really an Asset?
So, what’s something you might think is an asset but is really a liability? Let’s use your car as an example. Although some consider cars to be assets for the purposes of net worth, they don’t make you money. In fact, your car is losing value as we speak. Plus, there is all the money you spend on gas, insurance, and repairs. By our definition, your car is clearly a liability. Therefore, it makes sense to spend as little as possible and keep it for as long as you can. Instead of spending $40,000 on a new car, try buying a $15,000 used car and investing the other $25,000 into true assets. You’ll be better off over the long run.
Kiyosaki even argues that your primary residence is a liability because it doesn’t put cash directly into your pocket. (Many would disagree, but you see his point.) On the other hand, a rental house is an asset because it earns money.
Growing Your Wealth Through Assets
No matter who you are, earning extra money on the side is an important strategy for getting ahead. Luckily, there are a gazillion ways to do it. Here’s a list of 99 side hustles you can start right away. Just choose one and get started.
Ideally, you want to create at least one stream of relatively passive income. This helps increase your wealth without costing you too much time or effort. Instead of clocking in, you’ll be getting paid while you sleep!
That’s one reason why we love owning rental properties. Yes, sometimes they are a pain in the ass. And yes, we do end up spending a few weekends cleaning up the yard, repainting, and doing other types of maintenance. But what’s a few hours compared to over $10,000 a year in rental income per unit? That’s a huge return on our money, and much better than anything we could hope for at a bank!
It’s important to realize this doesn’t happen overnight. It takes time to build your asset portfolio before you start realizing their impact. Similar to using a debt snowball, your assets will increase over time, creating more and more wealth as you move along.
As always, it’s important to diversify your holdings. Having all your money in one spot is a dangerous thing. By spreading your risk, you can more easily cover your backside and successfully navigate the whims of any market.
Above all, start thinking wealthy. Get out of debt and seek to build your wealth through assets. Put your money to work, and you’ll have even more to use on the experiences you really want. Good luck and go get ’em!