Using Leverage

Leverage is another word for debt. Some individuals use debts to buy assets. According to Ray Dalio, credit functions as money in the short-term and long-term debt/credit cycles. But these folks define of an asset as something that puts money in your pocket, while liabilities are things that take money out of your pocket.

Robert Kiyosaki

Robert Kiyosaki is the author of Rich Dad Poor Dad: What the Rich Teach Their Kids About Money that the Poor and Middle-Class Do Not. This book was the first place I read about my home being a liability. Kiyosaki says that’s because my home costs me money; it does not earn me money. Anything that takes money out of my pocket is a liability according to Kiyosaki, while things that put money in my pocket are assets. This differs from the accounting definition of assets and liabilities.

Kiyosaki (as does Ramsey) reports that there are 3 types of income: earned income (i.e., your W4 job), portfolio income (e.g., stocks, bonds, and other things that appreciate), and passive income (e.g., real estate rentals).

Kiyosaki also warns against consumer debt, just like Ramsey, Sethi, Preston, and Collins. (Read last week’s post.) That’s because consumer debt is often used to buy liabilities, things that cost us money – clothes, iPhones, cars, etc. He refers to these liabilities as doodads. No buying doodads with debt! They lose value and cost us money.

Kiyosaki says the inherent risk of “good” debt is countered with education. Rich Dad is his financial education company. He helps both young and old people avoid the ignorance of saving without investing.

Be aware… Kiyosaki can come across as abrasive, but so can Dave Ramsey. if you’re not ready for it, it may hurt your feelings. He says things like, “Saving is for losers.” His belief is that wealth is for those with financial education.

Garrett Gunderson

Although he looks like Jesus, he is a finance guy! He is cut from the same cloth as Robert Kiyosaki.

Gunderson has written a book called Killing Sacred Cows. This has been recently followed up by Disrupting Sacred Cows. Like Kiyosaki, Gunderson has blue-collar roots. He passionately talks about building legacy wealth. This is wealth that you heirs can’t outgrow. He often refers to the Rockefeller family’s legacy wealth.

Buy. Borrow. Die. This is the mantra of the uber-wealthy. In a nutshell, people buy assets, like stocks. Then they borrow against their portfolio at a low rate. Then they die and pass the assets onto their heirs. This is one of the tactics that allows families like the Rockefellers stay wealthy for generations. He talks about 1031 real estate transfers so that families never end up paying taxes on capital gains. The real estate gets rolled over into other income-producing assets.

Conclusion

I’m not as up to speed on whales — billionaires, or close to it. I’m fiscally conservative, too risk-averse, and too old to borrow large sums of money to invest in apartment buildings and golf courses. So I am more in line with the middle-class gurus. Maybe if I had started younger, things would be different.

As Always…

Thanks for reading! I hope this information provides food for thought. Remember that I am not a certified financial planner, a certified public accountant, a licensed real estate agent, etc. My content is for educational purposes. I am a math educator who happens to have a finance degree. Like they say, never take financial advice from a math teacher! (Do they really say that?)

But you should spend less than you earn, invest the difference, and stay out of debt!

I would so appreciate your sharing my content with anyone you feel could benefit. And if you would like a free exploratory conversation or just want to shoot the breeze about personal finances, call me and leave a message or send a text to 570-731-0425.