The poor have day-to-day expenses, the middle class purchase liabilities
that they think are assets (i.e., a home or a car), and the rich build a solid
base of income-generating assets.
The middle class finds itself in a constant state of financial struggle. Their
primary income is wages, as wages increase, so do their taxes. Expenses
increase as wages increase. Hence the phrase “the rat race.” They treat
their home as their primary asset instead of investing in income-
generating assets.
The rich get richer because they keep acquiring more assets and
investments to generate more income, which far exceeds their expenses.
Reasons why the home is not an asset but a liability:
1. People work almost all their lives to pay off a home (30-year loans)
2. Maintenance and utilities expenses.
3. Property tax
4. House values can depreciate.
5. Instead of investing in income-earning assets, your money goes out to
payments for the house.
Your losses:
1. Time that could have been used to grow value in other assets.
2. Capital which could have been invested rather than paying home-related
expenses
3. Education that makes you a Sophisticated investor
If you want to buy a house, first generate the cash flow by acquiring
assets, which bring income to pay for it.
Examples of real assets are:
• Apartments for rent
• Real estate
• Businesses that do not require your physical presence. You hire
managers.
Average time of holding on to an asset before selling it for a higher value:
1 year
• Stocks (Startups and small companies are good investments)
• Bonds
• Mutual funds
