Charging Through Life

Growing up, especially when you are a teenager, most people think their parents are "lame" or don't understand anything in life. I remember sitting at the dinner table one day listening to my Dad say that, when he was my age, he thought HIS father didn't know anything either and that it wasn't until years later that he began to understand Grandpa's wisdom. I've been waiting years for the day when I look at Dad and say to myself, "hey, the old man may know something after all." Having recently turned 34, I've started to think that day would never come. That was until today.

As I've mentioned, I'm reading "Rich Dad, Poor Dad" and really taking a hard look at conventional thinking to see if there is a different way, a better way, for me to proceed with my life. The second chapter is about "Teaching Financial Literacy" but really it's focusses on identifying and understanding the differences between assets and liabilities.

How many times have you heard that, "your home is your greatest asset"? That, my friends, is conventional wisdom and is not always true. My first condo in Long Beach certainly turned out to be an asset because it doubled in value during the time KC and I owned it, and I was able to leverage that asset to help pay for my new condo. This West Hollywood condo, on the other hand, is not turning out to be much of an asset due to the housing crisis. In fact, barring some great government loan restructuring miracle, this shabby little over-priced box of mine is going to turn into an incredible PAIN in my Asset.

Simply stated: Assets make you money, Liabilities cost you money. And as this book says, "The rich buy assets, the poor and middle-class buy liabilities."

Through various stories and simple diagrams, chapter 2 of "Rich Dad, Poor Dad" explains that the rich acquire items that make the money they then use to buy the things that don't make money. If you can't yet pay for something you want, you first find a way to make the money (notice how I said "make" not "earn") to pay for it.

This is where I think my Dad may have been onto something. Growing up, we never had a ton of excess, yet we always had more than other people. Our family had a camper, a boat, even a fucking airplane! But these items were never extravagant. Our house was also not extravagant but it was comfortable and sufficient for the four of us. And like the camper, the boat, and the plane, the house was paid for! My parents never had a mortgage and were never in serious debt. I can safely say they have never seen themselves $40k in debt like I once was.

My Dad may have worked hard for a living, but it was for himself - he owned his own business. And he understood, at least on some level, how to pay for what he wanted. Growing up and being on my own in the 90's, with no financial literacy education to speak of, the lessons I learned were the exact opposite from what my Dad practiced. With my first credit card issued to me as a freshman in college, I learned that you could buy anything you wanted and make payments on it. This is how the world works and this is what I believed to be true. And it was that truth that landed me in bankruptcy court.

Our economy today is based on this line of thought. By perpetuating the conventional wisdom that 'you deserve to own this this thing (that you can't afford) because it will make you happy,' our system of debt spending continues to flourish keeping an economy, that largely doesn't create anything, moving.

At 34, having been drop-kicked to the bottom of my financial health by life's "conventional wisdom," I'm now beginning to see the spark of true wisdom in my Dad's way of thinking. You can buy anything in life that you desire, just follow these two rules:

1. understand that most 'luxury items' are liabilities and liabilities cost you money, instead of make you money like assets will do
2. ensure there are assets in-place that can pay for your liability BEFORE you purchase it