Hello! I’m so excited you are reading this post. Imagine I’m jumping up and down and waving my arms all around. That’s how excited I am, because today you could transform your financial future!
I had a money transformation in my late 20s. Instead of believing that I had to work for money, I learned that I could actually make money work for me. This simple yet powerful life lesson helped me retire before age 40.
Are you ready to learn this life lesson? Here we go!
If you ask someone to list their assets, they will usually include some of the following:
- The house or condo they live in;
- Any cars or motorcycles they drive;
- Big toys they own, like a boat, a big-screen TV, an expensive bicycle, a pricey computer or other electronics;
- Their savings, retirement, or investments; or
- Their personal belongings, including clothing, jewelry, shoes, etc.
Before my money transformation, I would have listed many of those things. I thought everything I owned was an asset. After all, I paid good money for my things – they were definitely worth something!
And then, I read Rich Dad, Poor Dad by Robert Kiyosaki. (I love this book so much, I wrote a love letter to Mr. Kiyosaki – read it here.) In his book, Mr. Kiyosaki talked about a gentleman named Buckminster Fuller, who filed a patent application. In that patent application, Mr. Fuller talked about wealth, defining wealth as how long a person could survive without working.
Basically, his definition went like this: if you stopped working, and you could still pay your bills forever, then you were wealthy.
I had never thought about wealth before I read Mr. Fuller’s definition. I mean, I thought that I had thought about wealth, as in: “Someday, I would like to be rich!” But it was such a far-off concept that I never really considered any hard numbers. I never tried to calculate what specific number of dollars would equal wealth, or that wealth could be measured by how many days I didn’t have to clock in at my job.
At this point, the rusty wheels in my mind started creaking and turning (a little).
The next part of Rich Dad, Poor Dad was even more thought provoking. Mr. Kiyosaki explained how assets and liabilities relate to wealth. Basically, he wrote:
Assets = put money in your pocket.
Liabilities = take money out of your pocket.
Buy assets, not liabilities = wealth.
Hmm, now that sounds super simple. Everyone must know this information, right? But I didn’t know anyone who was wealthy. In fact, everyone I knew had a job, and they had to keep going to their job to get a paycheck, just like I did.
At this point, the rusty wheels in my brain really started turning. Here’s what happened when I pondered the ideas of assets, liabilities, and wealth.
- Initially, I thought: “That is too simplistic.”
- Next, I thought a little more, and I got confused.
- Finally, I figured it out, and I got mad. I mean, stomping-around-my-condo-throwing-things-on-the-floor-yelling-what-the-hell-is-this-guy-talking-about MAD.
Why was I so royally pissed off? Well, if it’s possible that assets cause wealth and liabilities don’t, then I had to face an ugly truth. Nearly everything I owned or planned to buy was NOT as asset. My home was a liability. My car was a liability. My personal possessions were liabilities. Even my law school degree was a liability! (Don’t believe me? Keep reading!)
That didn’t sound right to me. I put a lot of damn good money into those things, and I just knew they should count for something in the asset column.
So I took a closer look at each item, one by one.
First, my home: it was a beautiful high-rise condo on Ohio Street in downtown Chicago. A shopping paradise called The Magnificent Mile was two blocks to the west, while gorgeous Lake Michigan was two blocks to the east. My building had a full gym, a 25-meter indoor pool, a hot tub, 24-hour doormen, and marble floors in the lobby. After getting a job with a big-time law firm and earning my first-ever six-figure salary, this condo was the first huge purchase, and I am proud to say I did it all by myself.
But…my condo didn’t generate any income. Now, I certainly expected it to appreciate in value over time. But it didn’t put money in my pockets each month. I paid the mortgage, taxes, insurance, HOA fees, repairs, everything.
If I chose a wealth-building definition of “asset” (still a big “if” at this point!), then my condo was a liability. So it turns out that I was proud of…a liability! I was not happy to see that the most expensive thing I owned did not contribute to my financial freedom.
Next, I looked at buying a car (my next big purchase). Of course, I would have to pay for the car. I’d also pay for the insurance, the gas, and the maintenance. The car would not put a single dollar in my pocket. Worse, the car would depreciate in value every year that I owned it! So my car would be a liability.
Then I considered my law degree. I paid LOTS of money for my law degree (just look at my $64,000 student loan!). Surely my law degree was an asset – I mean, I needed it to get a job as a lawyer!
But, no one was going to pay me money for just having a law degree (or any degree). I couldn’t sit at home and wait for a paycheck – I had to go to work every day. If I wanted to be financially free, then I had to accept that my law degree was a liability.
And on and on it went. It was such an ugly, ugly day when I realized that nearly every single thing I owned was a liability. The only bright spot was that I had some retirement and savings accounts, which generated earnings and interest. I could count those as true assets. Unfortunately, my liabilities outweighed my assets (by a LOT).
I didn’t know it then, but I know it now – that day was a moment of truth.
If I kept my liabilities, I’d have to keep clocking in at my job. I would work, every day, maybe for decades. If I wanted to be financially free, I had to do something different.
Ok. Stop for a minute. Are you ready for the moment of truth about your money? If you’re not ready, skip to Part 2 to find out what I did next.
If you are ready for your money moment of truth, then do the exercise that I did. Sit down with a piece of paper, and answer these questions:
- How many assets do you have?
- How many liabilities do you have?
- How many days can you live without a paycheck?
I’ll see you in Part 2.
May you choose to be financially free,
You can also check out How I Saved Myself From 21 Years and $50,000 of Payments, Part 1