Rich versus Poor
What big secret do you need to learn to become rich, and without it you stay poor?
The difference between Assets and Liabilities.
The Rich buy Assets, the Poor Liabilities
If this sounds simple, it’s because it is...the truth even when simple, may be hard to execute.
If it doesn’t grow, the answer is no!
A simple rule of thumb for large purchases for the growth minded. If what your about to spend a lot of money on isn’t going to increase in value or grow in value, you probably shouldn’t buy it. Seriously,
Many people are perfect consumers, they buy everything, the latest phone, computer and latest style of shoes, shirt, coats or pants. Often these new items replace old items which were working fine! The irony is these same people don’t have money to spend on investments and their personal balance sheet is a mess. They very few things which grow and lots of things which shrink in value.
Accumulate Assets, not liabilities
If you want to be rich, you need to stop accumulating liabilities, especially debt liability, as in things you pay for once that shrink in value or in the case of debt liabilities, things you buy on credit and pay for over time.
Good Debt versus Bad Debt
The exception to the simple rule of accumulating assets versus liabilities is the difference between depreciating liabilities and appreciating liabilities. A depreciating liability like a car is a debt, that most people pay for over 3-6 years, but the value of the car frequently shrinks faster then the debt incurred to pay for it. So that frequently people find the debt for the car becomes greater then it’s value.
This is different from a debt like precious metals or fine art. Those are appreciating liabilities, and even if they aren’t paid for and represent a monthly outflow on your balance sheet, they may increase in value fast enough that you never owe more then it’s worth.
Accumulate assets not liabilities, and if you must incur debt, make sure it’s an appreciating liability.
