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an employee, or as a self-employed person. That s
earned income.
It s very hard to get rich when your income is
based on your personal efforts. You only have so
many hours in the day. You only have so many days
in the week.
Passive and portfolio income come from assets.
The rich know how to convert their earned
income, if they have it, into assets that will generate
passive and portfolio income.
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So, they have their money work hard for them,
instead of them working hard for money.
You brought up assets. Assets and liabilities are the
cornerstone or the foundation of the series. Define for us
what an asset and a liability is and what they incorporate in
someone s portfolio.
Absolutely, Mike. I m glad you asked.
As you may know I m a CPA by schooling. So,
some of my fellow accountants may jump up and
down in disagreement when they hear this, but it s
very simple. An asset puts money in your pocket. A
liability takes money out of your pocket.
You should look at your whole financial life that
way.
Assets are things that generate income for you.
Liabilities are things that you have to sit down
and write a check for every month.
Ok. So, what we re saying here is assets bring it in.
Assets is cashflow or inflow .
Liabilities are outflow .
I want to bring up something right away.
We talked earlier about the difference between a rich dad
and a poor dad. The poor dad doesn t have as much capital
and stuff going on. What is the cause of the poor dad
mindset? Where does that all come from?
Well, you said the word, Mike, mindset. It s all a
mindset.
Let s talk a little about Robert s rich dad and his
poor dad.
His poor dad constantly said, I can t afford that.
Saying stuff like that closed his mind to
possibility.
In contrast, his rich dad would say, How CAN I
afford it?
His poor dad didn t want to talk about money at
the dinner table. His thinking was, Do you think
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money grow on trees? I can t do this. I can t afford
this.
Whereas his rich dad would say, HOW can we
create this asset to pay for things?
If I want a luxury, I need to buy an asset that will
generate the revenue to pay for the luxury. It s all in
how your attitude and how your mindset is related to
money.
Ok, let s stay here on mindset. You said something very
interesting. You said, your assets buy your luxuries.
Most people have their earned income buy their luxuries.
Is that right?
Absolutely!
And once it s gone, it s gone.
If you want a new car, you can just go out and
write a check to buy your new car. But, when that car
is gone, then that money and the car are both gone.
So, let s just tweak it a little bit.
Instead you go out and you write that same
check and you buy a duplex or a four-plex. It s a
piece of real estate that generates cash flow every
month. Then you can use that positive cash flow to
buy your car. And when that car is old and rundown
and tired and you need to get rid of the car, guess
what, you still have your asset. It s still generating
revenue. You still have that real estate generating
cashflow.
Ok, I want to make this very clear. So, Sharon, you re
saying to invest in assets not in liabilities. Don t create more
expenses but instead grow a cornucopia or a single property,
or whatever it is that can produce money for you on a
monthly basis. Then with that cashflow coming in over time,
you can then use that cashflow to buy your luxuries.
What I want to do here is get into a controversial point
on the subject of assets. I want to drill into my listeners
head s right now that there is a contrast between assets and
liabilities.
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Answer this question, Sharon, is my home, is your home,
is somebody else s home an asset or a liability?
So glad you asked that question, Mike. It
depends is the answer. Let s talk about your house.
Is this the house you re living in?
Let s take that as the example, yes.
So, it s your house that you re living in. Let s talk
about the definition of an asset. An asset puts money
in your pocket. Does your house put money in your
pocket each month?
NO.
OK, let s look at the definition of a liability. A
liability takes money out of your pocket. Does your
house take money out of your pocket every month?
Absolutely.
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