Creating Wealth: Decoding Assets and the Art of Passive Income

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Learn about creating wealth, assets and liabilities the Rich Dad Poor Dad way, and start your journey towards financial freedom today!

Robert Kiyosaki’s book Rich Dad Poor Dad may seem dated with its ’90s origin, but it’s vintage wisdom. It’s like that old Michael Jackson cassette tape that still delivers true pop music in this era of K-Pop and Taylor Swift. Kiyosaki serves a reality check, reminding us of the golden rule we’ve all, ironically, forgotten while chasing golden goose: understanding assets. This isn’t just about quick cash; it’s about understanding what real assets are and leveraging them for that ever-elusive passive income. 

Traditionally finance gurus especially accountants swear by assets like homes and cars. Finance gurus look at assets from the point of view of a bank’s position. For a bank, homes and cars are assets, because they have financed it, and these assets generate cash-flow for them.

What are Assets and Liabilities?

 But Kiyosaki throws a curveball, asking, “Is your home truly an asset for you?” Here’s the kicker—by his definition, if it doesn’t generate regular income or “put money in your pocket”, it’s not. Instead, that huge mortgage makes it a liability for you, draining your resources. 

So let’s define an asset once and for all. An asset is a valuable resource owned or controlled by an individual, organization, or entity that generates regular cash flow or provides economic benefits, either now or in the future. Assets can be physical, like real estate or machinery, or intangible, such as patents or investments. They are crucial for sustaining and growing financial well-being, often providing a continuous stream of income or increasing in value over time.

On the other hand, a liability is a financial obligation or debt that an individual, business, or organization owes to another party. Liabilities can include loans, mortgages, unpaid bills, or any other financial responsibilities. 

So now it’s clear. What brings you regular money is an asset. What takes away money from you regularly is a liability. Remember, your liabilities are someone else’s assets.

Imagine buying that dream penthouse, only for “Rich Dad” to label it a money-eating monster! The distinction is stark. While mainstream wisdom counts your worth by possessions, Kiyosaki’s lens prioritizes passive income streams. So, before splurging on that next big ‘asset’, perhaps ponder: is it fattening your wallet or just feeding your ego? A home is thus an asset for a bank, and most often a liability for the buyer.

Asset-Liability Conundrum

There’s a widespread yet misguided notion – the bigger the possessions the grander the assets. And herein lies the Asset-Liability Conundrum. As Kiyosaki points out, and rather painfully too, that sprawling mansion or flashy sports car isn’t necessarily the asset we’ve been smugly assuming it to be. Perhaps it’s the opposite, that is a liability. 

An asset, in the true Kiyosaki sense, should be your loyal cash cow – regularly dripping money into your bank account. Your home, while magnificent and envy-inducing, doesn’t quite fit the bill if it’s siphoning off your cash for mortgage, maintenance, and other endless outflows. Instead of being your knight in shining armor during financial storms, it might just be the anchor pulling you deeper into the monetary abyss.

A car can be an asset, if the owner is able to make more money from it than he invested in it. For example, if a person has bought a car, and makes money by using it as a taxi, the car would be an asset as he makes a profit, i.e rental income, less car running expenses, less driver’s salary (including his own time), less interest paid to the bank and deposit paid by him initially.

While mainstream banter often celebrates accumulating possessions, the Kiyosaki principal urges discernment, not everything that glitters is gold. In financial strategy, the real move is to distinguish between genuine assets from dazzling but cash draining liabilities. So next time you’re flaunting that new ‘asset’, pause and ponder: is it genuinely enriching you or just masterfully masquerading as a money-muncher?

Steps to Create Assets

In today’s age the foundational understanding of assets is often clouded by glitz and vanity. For those genuinely wanting to swim in the deep end of wealth creation, it’s crucial to differentiate the two. Let’s check out the basics of creating an asset.

1. Grasp the ABCs of Finance: Before building a financial empire, a basic thing you need is genuine financial education, preferable from someone who runs a business. It’s not enough to binge on Youtube or watch flashy influencers dish out ‘golden’ advice in between their holiday snaps. 

True financial education goes beyond surface-level jargons and digs deep into the mechanics of money. It’s the difference between thinking you’re on the Formula 1 track when you’re actually riding a tricycle in your backyard. A good tip would be to think that you are broke, and make your financial decision accordingly. If you are still in a hurry, try to master this online game cashflow.

2. Real Estate: Not Just for the Reality TV Glitterati: Think real estate, and images of opulent mansions from a Kardashian episode might flood in. But strip away the bling, and you get to the real deal. Real estate, when approached with research and rationale, offers two tantalizing prospects: rental income and capital appreciation. It’s not just about the bricks but about strategic location, foresight, and understanding market trajectories. Real estate may not be everyone; however they are one of the easiest assets or liabilities to understand the basics.

3. Venturing into Business: Time Isn’t Always Money, Honey: If your business model requires you to be its perpetual, over-caffeinated hamster on a wheel, it might be time to reevaluate. The trick is to design a business that, after initial heavy-lifting, can operate, thrive, and churn out profits without your hourly intervention. Create systems, delegate, and ensure your venture can breathe without your constant CPR. Of course, that can take years or even decades to build.

4. Intellectual Properties: Your Brainchild Can Pay Bills: Gone are the days when assets were just tangible entities you could touch or flaunt. Your next big asset might just be a brainwave away. A revolutionary patent, a gripping book, or even a catchy jingle can rake in royalties, making intellectual properties an intriguing avenue. But, a heads up: not every ‘Eureka!’ moment translates to dollars. Filter, refine, and validate your ideas.

5. Financial Portfolios: More Than Just ‘Stocking’ Up: Let’s be real. Not everyone has the flair for creating the next Apple or writing the next ‘Harry Potter’. For mere mortals, there are stocks, bonds, and mutual funds. With judicious choices, a sprinkling of risk management, and a dash of market understanding, these instruments can not only preserve but also grow your wealth. But beware! Don’t be that guy who dumps life savings on a ‘hot tip’ from a gym buddy.

Building assets isn’t about echoing buzzwords or flexing on social media. It’s a deliberate, calculated process of planting seeds, nurturing them, sometimes pivoting, and watching them flourish. Rome wasn’t built in a day, but they were laying bricks every hour. Your asset empire demands the same spirit and high degree of patience and persistence to fructify.

Most asset based investments start off as a liability in the beginning, and gradually convert into positive cash flow assets.

Passive Income: The Golden Goose of Financial Independence

Passive Income, It’s the art of making your money work for you, rather than slaving away for every dime. Simply put, it’s earnings from ventures where you’re not actively involved day-to-day. Instead of exchanging your precious hours for dollars, your assets do the heavy lifting.

The Magic of Passive Income

Imagine owning a golden goose – it lays eggs without working on it every minute. That’s passive income. It’s not just about the ease, but the freedom it offers. Money rolls in while you’re busy binging Netflix or exploring the Alps. Of course, that’s easier said than done, so let’s look at the details.

Real-World Glimpses of Assets:

  1. Real Estate: That apartment you are renting? The monthly checks are passive income for your landlord.
  2. Dividend Stocks: Bought shares in a flourishing company? Enjoy those regular dividends that are more than the interest that a bank would pay you.
  3. Royalties: Penned a popular book or licensed a photo? Ka-ching every time it sells.

Assets: The Snowballing Marvel

Here’s where it gets juicy. Reinvest this passive income into more assets, and watch your earnings amplify. It’s not just growing; it’s exploding.

In the financial game, while many are chasing their tails, passive income enthusiasts are letting their assets do the running. So, are you sprinting or smartly strategizing?

Conclusion

In the glittering short videos and podcasts, where everyone is trying to tell you how quickly rich and successful they are, making people feel like they have been left behind in life, the time-tested wisdom remains unshaken: genuine assets are the bedrock of wealth. 

While most of us chase ephemeral financial mirages, the savvy few of us understand the might of true assets and the magic of passive income, no matter how simple it is. It’s not just about cashing on an opportunity; it’s about the autonomy, the real freedom we chase i.e. a positive cash flow in our bank, without having to work for it. It doesn’t come easy at all. Even I’m still striving to build assets.

As the latest financial ‘trendsetters’ try reinventing the wheel, remember that understanding and building solid assets is the wheel, and it requires effort, patience and financial wisdom. It’s a pursuit of genuine financial liberation. So, here’s the challenge; will you anchor yourself in the world of real assets, and if so, how? Choose wisely; your future self might just thank you with a beach-side toast.

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