Robert Kiyosaki: How To Build Assets and Not Liabilities

©Robert Kiyosaki

Robert Kiyosaki has long emphasized the importance of building assets over liabilities. His simple but powerful definition of an asset is “something that puts money in your pocket whether you work or not.” According to Kiyosaki, assets can set the foundation for a stable financial future. Here’s what the Rich Dad, Poor Dad author had to say about building assets instead of liabilities.

Understanding Assets vs. Liabilities

Kiyosaki often shares that he has 7,000 rental properties providing him with a steady income stream, illustrating a clear example of assets. On the other hand, he refers to his house as a liability because it takes money out of his pocket. This distinction is critical: An asset generates cash flow, while a liability incurs expenses. The goal is to accumulate assets that cover your monthly expenses, so you don’t have to work for money; instead, your assets work for you.

The Golden Goose of Assets

In Kiyosaki’s view, the ideal asset is like the fabled goose that lays golden eggs. It’s not just about acquiring wealth but finding assets that continuously produce it. He argues that it’s crucial to understand not only the type of assets you want but also what an asset should do for you. The ultimate asset, therefore, is one that generates consistent cash flow.

The Four Basic Asset Classes

Kiyosaki breaks down assets into four classes:

  • Commodities: This includes tangible items like oil, gold, and agricultural products.
  • Paper Assets: These are stocks and bonds, representing shares in companies or debt instruments.
  • Real Estate Assets: The land and buildings that constitute property investments.
  • Business Assets: These are businesses that you actively manage or own a part of.
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Each asset class aligns with different personalities, strengths, and levels of risk tolerance. It’s important to reflect on what you’re comfortable with and willing to learn.

Choosing the Right Asset Class for You

When deciding which asset class to invest in, Kiyosaki stresses the importance of investing in what you understand and feel comfortable with. For instance, he prefers real estate over the stock market because it’s his area of expertise. The key is to choose an asset class that resonates with your interests and strengths.

Taking the First Step

Many people hesitate to invest due to fear of loss, attributing high risk to investing. However, Kiyosaki believes that it’s not investing that’s risky but rather the uneducated investor. Education is paramount before diving into investments.

Kiyosaki advises starting your journey to wealth by saving enough to invest in a small income-generating asset. This could be as simple as buying a small amount of stock in a company or investing in a peer-to-peer lending platform. The goal is to let these small investments build over time into larger ones, thereby creating more income.

Educate Yourself

Knowledge is power, and this is particularly true in finance. Kiyosaki encourages individuals to invest time in understanding the financial markets, real estate, and other potential investment vehicles. The more educated you are, the better your investment decisions will be, and the more likely you’ll be to build assets rather than accumulate liabilities.

Avoid the ‘Advice Culture’

Kiyosaki warns against the ‘advice culture’ prevalent in the financial world, where people often turn to salespeople or brokers for advice but end up learning very little. He encourages investors to seek knowledge and lessons rather than just tips on what to buy.

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Use Debt Wisely

Not all debt is bad. Kiyosaki points out that debt, when used wisely, can be a powerful tool to build wealth. For instance, taking out a mortgage to buy a rental property creates a liability (the mortgage), but if the property generates rental income that covers the mortgage and expenses, then you have also created an asset. The key is to ensure that your debts are attached to income-generating assets.

Create Multiple Streams of Income

Relying on a single income is risky. Kiyosaki encourages the creation of multiple streams of income. This could mean having several types of investments, starting a side business, or buying a property that provides rental income. This diversification helps to insulate you from financial setbacks in one area.

Think Long-Term

Building assets is not a get-rich-quick scheme. It’s a long-term strategy. Kiyosaki recommends looking at the big picture rather than seeking immediate gratification. This long-term perspective will help you make prudent financial decisions and build sustainable wealth.

The Takeaway

Building assets is not merely about collecting wealth; it’s about choosing investments that generate steady cash flow, educating yourself to make informed decisions, and steering clear of the ‘advice culture’ that benefits Wall Street more than individual investors.

Kiyosaki’s approach is not just a financial strategy; it’s a mindset that empowers you to take control of your financial destiny by building assets and reducing liabilities.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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