I’m sure you remember as a kid your parents would tell you that you should study hard, get good grades and find a good job. And that probably didn't only happen to you but that’s probably the case for 99% of people who are reading this post. If you take a look at A students either in school or university they came mostly from families whose parents are employees or specialists, like doctors, lawyers and engineers. In most of the cases the children are going to follow in the footsteps of their parents and eventually become doctors, lawyers or engineers themselves. If you're earning $200,000 as a doctor or an engineer half of your salary goes to taxes and then after paying for your mortgage, car and credit card I guess you'll end up with few pennies in your pocket. You must be out of your mind if you think that you're rich and that's the problem with high paid employees because they are paying most of the taxes. On the other hand, the people that paid the lowest in taxes and even sometimes 0% are business owners or investors. They are often not the straight A students. They're not getting A’s on all finance related subjects but they are financially smart. What does that mean?
Now forget what you have been taught in your accounting classes. We are going to redefine the basics with the perspective of rich people. An asset is anything that puts money in your pocket and liabilities are anything that takes money out of your pocket. So, if you're an A student, you’re probably thinking that your house is an asset because that’s what the school taught you and you have mastered it in that way. In reality it's not because it takes money out of your pocket, you have to pay taxes on it every year, insurance and other expenses, but if you rent that house out and you receive rental income on it then it's considered an asset. So the rich do one thing: they keep increasing their assets such as businesses, real estate, stocks, commodities and so on. Whether they work or not, these assets continuously keep putting money in their pocket and so the rich don’t work for money because money equals time and time is limited. However, the middle class has these high-paying jobs as doctors, lawyers and engineers and that’s their only source of income. Then they have all of these liabilities that they think are assets which makes them look rich but once they stop working they go bankrupt and are left with only expenses and nothing else to show for.
There is absolutely no problem if you start with a job and slowly but continuously work towards ownership of assets. I understand, especially when you graduate, you want to move to a new house and get a new car but in that way the only ownership you’ll have is that of liabilities. The thing is, ownership is risky. The assets you own, whether it’s a business or stock portfolio, can end up being a failure and you would’ve lost your money. The difference between a A student and a C student is that the first one isn’t used to failure. They’re used to continuously being rewarded for being good at taking tests and unfortunately the real world doesn’t consist of the same tests. They have no idea how to deal with failure and end up not even taking a chance. I’m sure you remember that straight A student that got a B+ once and acted like it was the end of the world. In the real world, failure is sometimes guaranteed and no matter how much you prepare for something, things can happen outside of your control. If you’ve never experienced something like failure at a relatively young age, it becomes hard to handle later in life. Instead they end up having a safe and secure job at a company and only acquiring liabilities. That company is probably built by a former C student that has failed numerous times before finally succeeding and building a successful business.