World Financial Blog » Getting rich

Know the difference between an Asset and a Liability.

9 April 2008 Sören Zschoche 62 Comments Getting rich

Many people say their house is the greatest asset they got and also their largest investment. In the most cases their car is the second greatest asset they got and they are really proud of it. But are these thing really assets? Unfortunately I have to say the in most cases they aren´t they are liabilities and the reason for that fact is that they absorb your money like a sponge. For example a car has many extra costs gas, taxes, repairs and so on, also a house needs very much money for energy, repairs to say nothing of the price you have to pay to buy it. So when you want to become rich it´s very important to know the difference between an asset and a liability.

Asset = Money into your pocket

An asset puts money into your pocket, an asset should generate income on a regular basis. The traditional definition of an asset is anything that you own is worth something-that could be “turned into money” if you needed it to be. Look around your room. Is there anything that might be worth something? You probably have more than you think… a computer, a TV, a cell phone? Skis? Your assets also technically include the balance in any bank accounts in your name, or the current value stocks bonds that you have your wallet.

But here´s the catch: While might consider everything of value in your room an “asset” (because you could sell it for decent money on eBay), it´s not really an asset until it is sold. Why? Because it´s not putting any money into your pocket until then. (And then, it´s not longer an asset because it not longer belongs to you!) Same thing goes for cash in your wallet, your cash is not secretly reproducing itself, putting more money into your pocket. But there are places other than your wallet where cash “reproduces itself”- when it´s invested in assets that give you a passive portfolio income. Anything you own that produced passive portfolio income is an asset.

Liabilities = Money out of your pocket

Liabilities are the opposite of assets. Liabilities take money out of your pocket. In fact, a lot of things mentioned above- the TV or computer in your room that that might traditionally be considered “assets”-are actually liabilities right now, because it took money out of your pocket just to get them. And many of them, when converted to cash, would give you back less money than you would pay for them. So just if the value of your house or your car grows more than you pay for it you can call it an asset.

Source: Rich Dad Poor Dad for Teens

How to get rich Part II

20 February 2008 Sören Zschoche 5 Comments Getting rich

So what the man did was the following, he knew that he didn´t earn as much money as others did but he also knew that others spent more money. Others work hard to earn more money just that they can spend more, but he wanted to work hard to save more money. He said that there is nothing more important as saving your money because if you don´t do that you will always work for the money but if you do it your money your money will work for you one day.

But saving money isn´t as easy as it seams, it really takes a long time and requires very much self discipline till you are the perfect depositor. The most important thing is that you really want to become rich but here are some other tricks to save money the man told me.

  • 1. Never leave the house with money you don´t essentially need.
  • 2. Break your EC and Credit Card(s) in two pieces you don´t need them anymore.
  • 3. When you have to buy something always look for the cheapest.
  • 4. Always remember one saved dollar is one earned dollar.

OK when you hear that it really sounds like the man had a very boring life, but he said that after a while you don´t even want to spend your money and get addicted to it somehow. Also you start to disdain the people who trow their money out of the window in the hope that the society respects you. You have to realise that money isn´t a toy you could rescue a child from the hunger death just for one dollar.

Saving money is the most effective and safest way of getting rich which is often very underrated by the people. Also the time value of money plays a very big role, like this short calculation shows.

For example if you start to save your money with the Age of 25 and you get 10 % interest rate till the age of 65 you got 4,868,518.11 USD. Otherwise if you start to save your money with the age of 55 you will just receive 175,311.67 USD.supertoll.PNG

Next time I will show you in which ways your money can work for you and where you get 10% interest rate.

How to get rich – Part I

7 February 2008 Sören Zschoche 1 Comment Getting rich

Most people believe that earning more money is the most important thing in order to get rich, but that’s not true. In this post I´ll show you that everybody can be rich no matter where he´s from or what job he does. But first I want to tell you a story from one of my friends Steve.

Steve works as an financial adviser for more than 2 years now, last week I met him in a bar and we talked about many different things. Finally he talked about his job and told me that last week a man came to him who needed help with his tax return.

The man drove an old car and didn´t really look like having money but he was extremely rich and had several million euros on his bank account. So my friend got inquisitive and asked him what he works as. The man smiled and replied that he worked as a construction worker for a long time, but now he unfortunately has no time for that job anymore. My friend thought he was joking and so he asked him if he inherited it or if he had won the lottery, but the man denied.

Then the man explained my friend that you don´t need a good school education for getting rich its helpful but not necessary. Much more important is your character and discipline. Getting rich is very easy, but you have to do it. My friend said to me that at this point he was pretty sure that the man was joking on him. But the man went on and told my friend that the only thing you have to do is to save your money and find ways to let your money work for you and one day the money will earn more for you as you do and then you are rich.

Next time I will tell you what exactly the man did, you will be impressed how easy it is. You just have to do it …