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If you follow us on Twitter, then you’ve probably heard me say that I wasn’t the biggest fan of Kiyosaki’s Rich Dad Poor Dad.  As I read the book, I simply wasn’t able to relate to way he portrayed the lessons he learned from his “Rich Dad”.

However, one thing that I wholeheartedly agree with Kiyosaki on is knowing the difference between an asset and a liability.  Financial literacy is unfortunately not a priority for many people so a clear understanding of each may not be had.

According to Kiyosaki, an asset as something that puts money in your pocket while a liability takes money away from your pocket.  Simple enough, right?  Unfortunately, the spending habits of many don’t follow the logic of acquiring assets and trying to limit their liabilities.

There are a few liabilities mentioned that I feel as though they are good investments, regardless of if they temporarily take money out of your pockets.  For example, an education is something that can increase your potential earnings in the future and a mortgage can provide you a rental property down the line when you go to move.

So what can you do to maximize your assets?  First, start by looking at your budget.  I always say that you need to spend with purpose and making sure you have an intentional budget is the best way to do so.  After you contribute to your 401k and IRA (Because you have both, right!?), challenge yourself to create a new category in your budget for asset generation.

After you have done that, decide what types of assets you would like to own.  Kiyosaki splits them into three basic categories:  Paper assets, real-estate, and businesses.  My absolute favorite type is equities, or stocks, which fall into his category of paper assets.  More specifically, I prefer stocks that pay consistent dividends.  Dividends are payments made to shareholders as a way to share in the profits that a company has.

Another type of asset that I have been very fortunate to have is a rental property.  I was very lucky to find a good tenant for my rental home.  Having a consistent payment every month made by somebody who takes as much pride in the home as I did when I lived there is a blessing to say the least.  Owning rental property is not for everybody though.  There can be some extremely stressful times when things need to be repaired and you are responsible.   Nevertheless, if done correctly, owning a rental property is a great way to generate more income.  In the coming weeks, I’ll detail the steps that I took in order to become a landlord by the age of 25.

Finally, the last type of asset as described in Rich Dad Poor Dad is owning a business. One of my favorite shows is Shark Tank on ABC.  I love the idea of entrepreneurs who just haven’t broken out getting advice and funding from other successful business owners.  The best piece of advice I have heard from this show is that if you want to be successful in creating a product or starting a business, you need to find solutions to problems that other people have and implement the solution. If you have an idea, take action.  Even if it’s already been done, there’s no reason you can’t improve it.

Man Yelling Tell Me How

After getting to this point in the article, you may be experiencing the same frustration I had as I read Rich Dad Poor Dad.  There’s a whole lot of “THIS CAN MAKE YOU RICH AND SUCCESSFUL” but not a whole lot of how do you do it.  My point of this article is not to go into details about how to buy a dividend paying stock or how to start your own business, but rather get you thinking about the differences of assets and liabilities so that you can be more mindful as you’re making your own financial decisions.

If you’d like to read Rich Dad Poor Dad, you can find the book pretty cheap here:  Purchase Rich Dad Poor Dad from Amazon.

Have you read Rich Dad Poor Dad?  Do you have any advice on growing your assets and minimizing your liabilities?  Find us on Twitter and let us know over on our Facebook page what you thought of the book.  We can’t wait to hear from you!

-Archie