The question of whether a home is an asset or a liability never really entered my mind until recently. I came home two Friday’s ago after work to find the book, Rich Dad Poor Dad, in my mailbox. It was a gift from my girlfriend, who had heard me talking about how I wanted to read it a while back. After seeing the book, I immediately sat down and started reading it. Less than two weeks later, I’m thinking differently about my personal finance strategy.
I won’t be doing a review on this book because I haven’t yet finished it, but I do want to reflect two of the concepts mentioned. These are:
- A home is a liability, not an asset
- The poor and the middle class work for money and rich people have money work for them
A Home is a Liability, Not an Asset
This is a crazy point when you first hear it. I thought so anyway. *By the way, we’re talking about buying a home to live in vs. buying a home to rent out. The thing we always hear is that a home is a good investment and that it is like paying yourself instead of paying someone else. When you’re old and gray, you will own the house instead of owning nothing if you rent. A nice side bonus to home ownership is that you can deduct mortgage interest on your taxes.
Sure, this is all great, but to Robert T. Kiyosaki, the book’s author, these points are irrelevant. His argument is that when you buy a home just to live in, you buy in to a liability. This home you are buying comes with many responsibilities, many of which are financial. You have to pay property taxes. You have to maintain the home when things wear out. You have to heat and cool the home. You also have to cut the grass, spray the weeds and rake the leaves in the fall. The bigger and/or more expensive the home you buy is, the more of a liability it becomes.
Honestly, I can see Kiyosaki’s point on this. Sure, I pay $725 each month in rent, but it’s fixed and not a liability. It’s an expense. When things break, I ask to have them fixed. When the place gets old and worn down, the apartment complex upgrades things little by little. I simply budget for the expense every month and go about my life.
By owning a home, you sign up for a liability, even if you pay cash for it. Sure, you may get your money back out of it when you sell it someday, and maybe even some extra, but you still have to maintain the home while you own it. It comes with responsibilities, which can keep you from building wealth. Although I agree with Kiyosaki that a home is a liability, I’m not arguing that a person or family shouldn’t buy one.
From a personal and family standpoint, home ownership certainly has its advantages and can be an asset to someone’s personal or family life. Yes, I believe homes are great and that ownership is great, but I’m only saying that I agree with Kiyosaki in that it is a liability instead of an asset. An asset is something that makes you money instead of the other way around.
By the way, I’m not implying that renting is any better than buying. Either way, it’s an expense. I’m only saying that I believe neither one is an asset. This belief now gets me thinking that I may want to wait longer to buy a home and instead keep saving.
The Poor and Middle Class Work for Money and Rich People Have Money Work for Them
This is also a very interesting point. The concept that Kiyosaki points out throughout this book is that the poor and middle class work day in and day out in the “rat race” and never really get ahead. He says that this happens when you work for money. Now, I’ve heard it said that you’ll never make much money if you’re using your body to do the work, instead of your mind. But this brings an entirely different concept to mind. This says that just being an employee and working for money, meaning trading your time for money, is being in the “rat race” and is going to make it hard for you to get ahead.
It kind of makes sense. When you work for money, you are too busy “working” all the time to really ever make any money. Money is to be made when leveraging strategic thinking and building on something. I’ve seen this with the company I work for. We build on something every day. We have a software application that multiple programmers have spent years building. It’s an asset to our company because we own it, we control it and we can license it out and make money off of it. We also have spent millions of dollars building out a content library of digital assets, which combined with our software (or combined with the website software of other companies) is worth a ton of money because we can license it out. It’s an asset to our company. Doing nothing else, those assets can make the company a pretty huge cash flow each month.
Having money work for you is about building assets that will work for you. It’s about building assets that are worth something to others. Working for money means you’re helping someone else get rich. You’re helping build their assets so that those assets can work for them. To have money work for you, you need to focus on building assets of your own that will work for you.
This is some deep stuff, I know. I’m not suggesting that you all quit your jobs and go start your own companies, because that would be nuts. Starting a business is a big deal and can’t be done at the drop of a hat. I’m still an employee and work for money. I don’t plan on changing that anytime soon either, but still this is an interesting concept that really gets me thinking about my future.
What are your thoughts? How do you feel about a home being an asset versus a liability? How do you feel about working for money as opposed to having money work for you?