Chapter Two: Lesson 2
68
As an employee who is also a homeowner, your working efforts
are generally as follows:
1. You work for the company.
Employees make their business owner or the shareholders
rich, not themselves. Your efforts and success will help
provide for the owner’s success and retirement.
2. You work for the government.
The government takes its share
from your paycheck before
you even see it. By working harder, you simply increase the
amount of taxes taken by the government. Most people
work from January to May just for the government.
3. You work for the bank.
After taxes, your next largest expense is usually your
mortgage and credit-card debt.
The problem with simply working harder is that each of these
three levels takes a greater share of your increased efforts. You need to
learn how to have your increased efforts benefit you and your family
directly.
Once you have decided to concentrate on minding your own
business—focusing your efforts on acquiring
assets instead of a bigger
paycheck—how do you set your goals? Most people must keep their
job and rely on their wages to fund their acquisition of assets.
As their
assets grow, how do they measure the extent of their
success? When does someone know that they are rich, that they
have wealth?
As well as having my own definitions for assets and liabilities,
I also have my own definition for wealth. Actually,
I borrowed it from
a man named R. Buckminster Fuller. Some call him a quack, and
others call him a genius. Years ago he got architects buzzing because
he applied for a patent for something called a geodesic dome. But in
the application, Fuller also said something about wealth.
Rich Dad Poor Dad
69
It was pretty confusing at first, but after reading it,
it began to make
some sense:
Wealth is a person’s ability to survive so many number of days
forward—or, if I stopped working today, how long could I survive?
Unlike net worth—the difference between your assets and liabilities,
which is often filled with a person’s expensive junk and opinions of what
things are worth—this definition creates the possibility for developing
a truly accurate measurement. I could now measure and know where I
was in terms of my goal to become financially independent.
Although net worth often includes non-cash-producing assets, like
stuff you bought
that now sits in your garage, wealth measures how
much money your money is making and, therefore, your financial
survivability.
Wealth is the measure of the cash flow from the asset column
compared with the expense column.
Let’s use an example. Let’s say I have cash flow from my asset
column of $1,000 a month. And I have monthly expenses of $2,000.
What is my wealth?
Let’s go back to Buckminster Fuller’s definition. Using his
definition, how many days forward can I survive? Assuming a 30-day
month, I have enough cash flow for half a month.
When I achieve $2,000 a
month cash flow from my assets, then
I will be wealthy.
So while I’m not yet rich, I am wealthy. I now have income
generated from assets each month that fully cover my monthly
expenses. If I want to increase my expenses, I first must increase my
cash flow to maintain this level of wealth. Also note that it is at this
point that I’m no longer dependent on my wages. I have focused on,
and
been successful in, building an asset column that has made me
financially independent. If I quit my job today, I would be able to
cover my monthly expenses with the cash flow from my assets.
My next goal would be to have the excess cash flow from my
assets reinvested into the asset column. The more money that goes
into my asset column, the more my asset column grows. The more
Chapter Two: Lesson 2
70
my assets grow, the more my cash flow grows. And as long as I keep my
expenses less than the cash flow from these assets, I grow richer with
more and more income from sources other than my physical labor.
As this reinvestment process continues, I am well on my way to
becoming rich. Just remember this simple observation:
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