Have you invested, or have you taken on an obligation? Is my home an investment, or is it an obligation I have acquired?
Robert Kiyosaki talked about this in practically every book he wrote about getting rich. Economics faculties did not really agree with his arguments, but they all agreed that, as a businessman and investor, Kiyosaki was a genius.
Most of the middle and lower classes believe that their best investment and their best asset is their own home. Robert considered it the biggest liability a person could have.
For readers who are not very financially literate and get lost in these terms:
- Liability: money that goes out of your business or your pocket.
- Asset: money that comes into your business or your pocket.
Knowing that, you already have the basic, fundamental knowledge to understand, according to Kiyosaki, why the rich keep getting richer and the poor keep getting poorer.
- The rich invest in assets: they buy in order to sell, and they invest in savings plans, the stock market and so on.
- The poor invest in liabilities: they buy a house to live in, and they don’t have enough money to invest, let alone to risk, so they have very little chance of changing their financial position.
When someone from the middle or lower class realizes this, they try to change their situation. So they decide to open their own business, thinking it will be an asset that generates income for them.
But if this entrepreneur has not received a good business education, they end up setting up a business that demands all of their time. So that would not be an investment either; it would be an obligation.
See also: What is a reasonable average annual return for a stock market investor?
“If your business can’t run without you, you don’t have a business, you have a job.”
For a business owner, it is just as important to create a business and make it work as it is to choose the right staff, so that the business can run on its own and generate profits for you. That way you could devote yourself to other ventures. That is how you acquire an asset.
That is what Robert Kiyosaki called making money work for you, instead of you having to work for money.
Imagine if the owner of a hotel chain had to be present at every one of his businesses. If he doesn’t need to be, I don’t think the owner of a smaller business needs to be either.
As for buying a house, which is every Hispanic person’s dream: did you know that in the United States most big entrepreneurs rent until they have saved enough money to pay for their home practically in cash?
They consider housing the riskiest investment there is, and believe that the money you pay on a mortgage becomes a payment obligation, money that could have been invested to generate profits. That is one of the reasons why, in the United States, entrepreneurs build the huge corporations we have talked about so often in previous articles.
These are different mindsets, of course, but if you analyze them carefully, it is clear that you cannot generate more profit if you only invest in obligations.
Welcome to the global head-scratching this argument can cause.
Further reading
- Flaws in a boss that put your business at risk
- Common mistakes made by Hispanic business owners
- Why new businesses fail
- Should you start a business or buy one?
- Profitable investments in times of crisis
Featured image: Gage Skidmore from Peoria, AZ, United States of America, CC BY-SA 2.0, via Wikimedia Commons.
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