New ways of looking at old problems

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I’ve just finished reading a classic PF book that I’d never before gotten around to – Rich Dad, Poor Dad by Kiyosaki & Lechter. I found it to be a real eye-opener and a great way to think a bit deeper about money and our approach to it. I like challenging myself with new ways of looking at things, and this book certainly does that.

One of the central concepts of Rich Dad, Poor Dad is that you should buy assets that `put money in your pocket’. Essentially an asset should contribute to your ability to make money passively. So the more assets like this that you buy, the less you are dependent on your wage income to survive. This is a profound thought because I’ll admit, it’s only been the past few years that I have ever even dreamed that you could make an income without a wage or owning a business. I know, I know … I’m not from a family of investors OK?

Anyway, this concept of buying an asset that puts money in your pocket sounds easy until you realise that the average person’s major asset – their home – doesn’t fit this criteria. Essentially your home is a liability, according to the authors, which only creates expense. It certainly doesn’t put money in your pocket. This is a challenging concept to me, because buying my own home is one of the things I’ve looked forward to most since I was in my early 20s. I admit I have often heard that buying your own home doesn’t necessarily make sense from a financial perspective. I’ve even heard an Australian investment guru say that (in a perfect world) we should all do a deal with our best friend so that each buys the home the other one likes, then essentially `rent’ to each other. That way we’d get the tax advantages of owning an investment home. Of course, we’d probably get a lot of lost friendships too but I know what he’s saying …

Anyway, from the perspective of someone wanting to buy a home, it’s challenging to hear that this isn’t necessarily the best option to make the most out of my money. I know that where I live, repayments on a basic home are at least $600 for a home that would cost $300 a week to rent. Then you add on the costs of insurances, rates and repairs, and I admit the deal doesn’t look that great. I also fear missing out on the rising value of my home over time — except that in our market, the boom has occurred over the past 5 years (while I was studying and we couldn’t afford to buy) and I doubt it will keep going up much longer. (Then again, that’s what I said last year!)

The way things are planned, even when I start work, most of my wage will go on mortgage repayments for a 30-year loan. If we trade up in terms of home value, it will only get worse. And when do I make plans to start other investments while tying up so much money?

So I can see Kiyosaki & Lechter’s point. It’s just so hard to imagine putting my money in to some other asset when I don’t even own a home. I definitely think it’s worth reading this book though, and I recommend it if only to allow yourself to think a little bit outside the box. Sometimes we only look at a microcosm of our options (I know I tend to).

In reality, I need to consider getting rid of the last of my consumer debt before I would take up most of the advice in this book. But I definitely intend to read it again, and pick up some of the other titles in the series. I recommend you take a look at it – it was a New York Times bestseller and should be in most libraries.

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