“Buy assets, get rid of liabilities” – approximately this conclusion is made by a person who is determined to achieve financial success and has gathered a variety of useful tips from popular literature on wealth and hundreds of sites on the topic of enrichment .
If you remember that the great and terrible Robert Kiyosaki wrote “an asset – everything that puts money in your pocket, a liability — everything that drains money out of it, everything looks great.
Here are just financial assets and liabilities – not exactly as it appears to an American millionaire. And following this simple advice can lead to problems with your personal finances.
So what’s wrong with the “buy assets” formula?
The fact is that this formula, as well as the description of the concepts of liabilities and assets, which has been taken from Kiyosaki’s books on hundreds of websites and tutorials on personal money, has been greatly simplified and distorts the real situation. This is natural: concepts that are given in popular books on finance are simple in themselves, but difficult to use , because you need to keep in mind a lot of additional conditions. Now you will understand everything.
The fact is that in a simple definition of assets and liabilities actually does not allow them to clearly separate. Here is a very simple example. Suppose you have a certain asset, say, a highly profitable commercial real estate. You get a high rent, it is more than enough for maintenance and other working expenses. But then, suddenly, a railway and an airport were built near your house. Residents who fled to where to rent housing at the same price is simply unrealistic. And you still have to pay for utilities! As a result, the income from the building was less than the cost of its maintenance .
And what is this house like? Active or passive? After all, the house itself has not changed. It is worth it. But he began to suck the money out of your pocket.
The example with the house is still very simple and clear. Objects can move from liabilities to assets with staggering consistency. This is pretty obvious and understandable. Well, now ask yourself: is it easy, will it be convenient to build your budget, your business, your financial plan based on such concepts? If they are so fickle? Is this supposed to be the foundation of your well-being?
Another example. Expensive car for which the loan is paid is, of course, the “king of liabilities”! Yes? But it can bring a lot of benefits, including in monetary terms:
- pleasure from a comfortable ride;
- high status (not only “Ponte”, but also a real increase in the prestige of a person in the eyes of business partners);
- Finally, the car can be taken at 15% per annum, and the owner’s business brings 40% per annum, and it is more difficult to get money for business than asking for a consumer loan.
Well, how do you like this passive?
What was written above is all the lyrics needed to get you up to speed. Let’s look at the problem more specifically.
First, some results.
a) It is often damn difficult to separate assets and liabilities (according to Kiyosaki). We do not bring income very many IMPORTANT AND USEFUL things – but at least our body: feed it, dress, treat, entertain. Oh, oh, oh, because it takes our money!
b) Possession of things that require money, investments is not a sign of financial illiteracy.
In fact, dividing one’s property into two lists is absolutely redundant work. As I wrote in the previous article on this topic, this division was necessary for Kiyosaki to explain to any fool simply on her fingers and with a picture that you should strive to earn income and get rid of expenses (isn’t it, awfully original idea?) .
So here. For practical purposes (real financial planning, making decisions about investing or obtaining a loan, and so on and so forth) it is much more convenient to use the present concept of liabilities and assets – see the link above.
In short, liabilities do not really exist at all. They are in the relationship of people. These are loans, loans, accumulated profit over a lifetime (which no longer exists – it has turned into assets that really exist – that is all that we have).
So how to use this new understanding? What will our formula look like in this case? It’s very simple: manage your balance sheet wisely . Watch and column “A” and the column “P”. Do not be afraid to buy assets burdened with certain liabilities (the example of an expensive car is higher), but manage them wisely. And the correct (accepted all over the world!) Understanding of this balance will help with this. You just need to watch “what threatens” one or another act in relation to your budget. Any transaction affects both assets and liabilities at the same time – and this must be remembered.
If to put it more correctly, you need to operate with the balance sheet, and not with real-life objects. Recall the house in the first example. He became a source of income source of commitment. But he himself remained unchanged. So, we need to make a minimal impact, which will help get rid of the harmful effects of the surrounding buildings, raise its attractiveness to tenants in other ways – then the profit will increase. Do you understand? The task is not so mechanical: buy / sell profitable or unprofitable. The task is to adjust the balance of your skillful management.
(If you managed to read the article to here – and you still have a sense of misunderstanding – not scary! Just keep working on your financial literacy – and understanding – real, deep understanding! – will definitely come!)