This week I continue explaining in detail the major themes that I teach my students. This week I cover the third one on the list which is the need for us to build our asset column. In this installment, I define an asset with a more strict or stringent definition than what is found in accounting textbooks. I want my audience to think of an asset as “something that makes us money”, the definition I found when reading Robert Kiyosaki’s books. By using this definition, we focus on buying assets that will allow us to retire. This approach will keep you the audience from making the mistake of buying too big a home as a means of building your wealth. In this installment I refer to the accounting equation which is:
Assets = Liabilities + Net Worth
I stress that to build wealth, we need to buy things that make us money by diverting our earned income into assets that likewise earn us additional income. We can do this in a way that eliminates the liability column forcing us to naturally build our net worth column.