Why Are You Not Rich Yet? The Poor, Middle & Upper Class Definition of the word "Asset" (Technorati) Technorati | (Del.icio.us) Del.icio.us | (Digg) Digg | (Blinklist) Blinklist | (Comment) Comments (17)

I recently received an email from an individual (who will remain nameless) that wanted to know why it was they felt like they would never get ahead financially. A feeling of being stuck in the rat race of life, struggling to never get ahead in the end. My answer to his question was simple and it paralleled the ideologies expressed by Robert T. Kiyosaki in the book “Rich Dad, Poor Dad”. The answer is one that is not readily taught in our school systems. Before I give you the answer to why you aren’t rich yet, let me first ask you a couple questions and see if you can’t figure it out yourself.

Question 1: How many different assets do you own?

Question 2: How much passive income have these “so-called assets” of yours produced?

Does the second question change your outlook and perspective of the first question? The word ASSET is defined three different ways. The first way is how the poor class defines it, the second is how the middle class defines it and third way is how the upper (rich) class defines it. The way in which you define this term will ultimately define your financial well being in life (or not so well being).

The Poor Class The poor class does not define the term asset because they only have liabilities and expenses. To much of their income (over 90%) is spent on liabilities and expenses leaving little to no room to ever grow fiscally.

The Middle Class A good portion of this sites readers are from the middle class. The middle class is the most interesting of the classes because of their total misunderstanding and confusion when it comes to understanding what an asset really is. How many of you reading this article are from the middle class and many reading this article listed their house and cars and toys as assets? This is where the confusion sets in and is the main reason why the middle class never “break out” and are stuck in this rat race.

So tell me middle class, how much money has that beloved house of yours (the number #1 so-called asset you own) made you in the past year? Don’t forget to deduct the mortgage costs, electricity, heating, taxes (oh my gosh the taxes!), cable, Internet to read this site and all the other expenses associated with owning a house. Sure your house might go up in value, but is it going to increase at a rate that is faster than the expenses it consumes? If you answered yes to that question then please send us an email so we can come live where you live. The real answer is of course not! Your house isn’t an asset unless you are renting it to someone else and they are covering all your expense and then some.

Or how about that car or boat you bought last summer? How much passive income has that made for you? My point is this: the middle class buy liabilities that they THINK are assets. The amount of money they make is irrelevant. The more money they make, the more liabilities they acquire. Its a vicious circle that leaves many families left wondering why even despite the raise they got, are still in no better position fiscally then they were in before. Its because they don’t understand money and more specifically its because they don’t understand the definition of the word “ASSET”. The quicker they figure out this out, the quicker they will get out of this rat race.

The Upper Class The upper class buys assets that are assets. In fact, they typically own so many assets that the passive income produced by each only feeds the fire. Ever hear the phrase “money finds money” or the “the rich get richer”. You think this is by accident? The reason the rich get richer is because they understand how money works and recognize real assets that generate passive income to pay for all their expenses vs. liabilities. Do you think the rich ever have to dip into that precious paycheck? Of course they don’t cause their assets are paying for everything. The rich then go and use the money produced from the assets to guess what…….. you are correct! BUY MORE ASSETS!

The day the amount you earn via passive income from your assets exceeds your expenses, is the day you are considered rich in my book. Millions of dollars does not make you rich as we have all seen those lotto winners go broke a year or two after they win. This is because they don’t understand the above. They buy liabilities and more money will never solve their lack of financial understanding.

Now scroll back up to the top and ask yourself those two questions again. Does your answer differ from when you started reading this article?

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17 Comments - Post your comment below.

Mar. 20, 2007

You think this is buy accident?

I don't know if this was intentional or not, but I like this typo.

Anyhow, this is a really interesting perspective on the difference between the middle class and the rich. I recall an episode of the Family Guy where Stewie is sitting on a porch and says "It's good to own land". I always repeat that to my brother and talk about how we can get to the point where we have assets that will keep earning money without us working 14 hour days all the time. Hopefully that will be sooner rather than later. Any advice on how to gradually make that transition from middle class to rich this way?

Mar. 20, 2007

Kevin - would you believe that typo was on purpose? ;-) You ask a great question and I can see that you are already in the right state of mind.

To answer your question without getting into too many details, when trying to find alternative assets to purchase I aways keep one phrase in mind. That phrase is "Mind your own business". In other words, I stick to the industries that I know best. I have a master's degree in Information Technology and web design and thus I do not try to venture into real estate like my brother does. I do a different kind of real estate - Internet real estate. I often buy other websites. I know this industry the best and I know right away if a website is going to make me money in the future.

What I would suggest is to take a good look at what it is you know best and dabble for opportunities in that area. It does not have to be work related either. One of my personal favorite hobbies/sports is Trout and Salmon Fishing on Lake Ontario. Based on my IT background, I created a website called Lake Ontario United (http://www.LakeOntarioUnited.com). The site runs itself and its members are very passionate about being part of it.

The mistake I see too often is people getting excited after hearing that someone made money and so they want to jump into the same thing without having any past experience or guidance into such an endeavor. My brother is a garage door installer and travels all over the Rochester, NY area every single day. He sees first hand all the real estate and knows the all the builders. It is a nature fit for him to look at real estate opportunities. This doesn't mean you couldn't learn it given some time, but my point is that "minding your own business" should, for many of us, be the first phrase we think of when looking to purchase or create additional assets.

Mar. 20, 2007

I'm sorry, you can't redefine "assets" to mean "income-producing assets" and "liabilities" to mean "expense-incurring assets." Assets are things that are *owned* whether they produce income or not. Liabilities are things that are *owed*. Try looking at a company's balance sheet. This has nothing to do with class, these are the definitions of the words.

A car, no matter how much it is worth, is an asset if someone will buy it for more than $0. It may have associated liabilities, like a loan.

Anything else is a gimmick used to sell books to people who aren't bright enough to understand the real definitions of English words which have been in use for many generations.

I'm all for thinking differently about assets, and I certainly believe it's better to have income-producing assets than expense-incurring assets, but let's not try to redefine the words.

Mar. 20, 2007

Flexo, we are not redefining the word "asset". We are looking at how different classes view the word asset. I agree that in its broadest definition the word asset entails anything owned that has a cash value. This includes property, goods, savings or investments. Definition aside, the way in which different economic classes view assets varies greatly. I should have been more clear in my wording. Income producing assets is the correct terminology I was looking for.

Mar. 20, 2007

Chad: Thanks for being clear about that. I've read Kiyosaki's works, and he is clear as well: he expressly suggests redefining the words to suit his purpose, for example, claiming a house is not an asset.

I'm all for the importance of cash flow, but assets and liabilities have nothing to do with cash flow.

Thanks for the post.

Mar. 21, 2007

A nice site i must say, you guys seem more into properties i guess , for cash flow or may be for capital gains . but i would like to know that how would you go on creating a passive source of income or residual income? through investments or building up a business .

Mar. 21, 2007

Gagan - thanks for the kind words. My passive income is generated via the websites that I own. They take very little (if any effort to run) and the advertising revenue they create is enough to allow me to buy more sites and so my network continues to grow. I am also the president of BlueEye Design Co. and all my clients run their hosting through me - another source of passive income that grows with each client that I do. On top of that, I actively invest in the stock market. Of course this all unique to me and my background. Remember that I went to school for Information Technology and Business Management. I wouldn't suggest going out and simply trying to mimic me, but take a good look at what you are good at and think of ways to create passive income from the things you love to do and the things you are personally good or have studied.
Take care.

Mar. 28, 2007

Chad, I really like your hands-on approach. :) I found the discussion above RE: assets vs. income-producing assets interesting. I would like to add to that the value of a growth investment--something in which you can really see the potential, invest for a few years at least and then when you get out, paying 15% on the capital gains. Of course, this would also be applicable to your "mind your own business" rule--something I completely agree with. Just a little diversification on the matter. Of course, I am still waiting around for that growth OR income-producing opportunity... ;)

Mar. 28, 2007

Estarla, thank you for the kind words. You make a good point with respect to growth investments. Thanks for sharing :-)

Winterman Asset Management SA
Apr. 9, 2007

You make an interesting point about the definition of an asset by various socio -economic types. There is also another reason that 'the rich get richer' and that is smart tax planning. Many clients are amazed at the compounding affect of saved tax dollars but are not prepared to invest in the upfront cost. Invariably wealthy clients already have some form of tax initiative in place.

May. 12, 2007


The rich buy more assets with money gained from assets whereas the middle class buy more liabilities and apply for credit to buy more liabilities to live a rich lifestyle.

THe middle class get further into debt and forever working till the day they are unfit to work ever again.

May. 12, 2007

Well said Ben!

May. 24, 2007

Very interesting. I am busy designing a financial planning system and I liked this perspective. I just wanted to pose a philosophical question. What about Voltaire's principle: "The prosperity of the rich depends on an adundance of the poor." The passive income of the "smart" upper classes depends on the rents paid by the "dumb" lower classes. It also depends on the honest conservative middle class working 14 hour days managing and growing the assets of the rich. If everyone suddenly "got" smart the economic equation described above might not hold. Are all great economies not perhaps built on a "sacrificial" class driven to work till death, driven by religous convictions or perhaps patriotism without hope of significant wealth as reward? Should you be discouraging them? Could be dangerous.

J Eric
Aug. 8, 2007

I am an 23 year old male and i wont state where im from. When I was eighteen i saved up from my job at the plant and bought a city owned hud house for 2200 dollars. It needed some things but i could do most of them, but after a 1500 dollar fixerupper i sold my first house for 42000 dollars in less than 6 months, like i said i was 18, ive been doing that ever since, now im selling 5-6-7 a year and if i could do it at that age anyone can. You dont have to "mind your own business", becuase someone elses business may be your true business...and being your own boss in real estate could be YOUR BUSINESS. email me and ill point you in the direction of wealth..

Sep. 24, 2007

I like to reference to Family Guy. Great Show.

Apr. 14, 2008

The biggest asset a person can own is a bank. They create money from thin air, letting them buy other assets. Here's a description:

- The Problem -

This is an attempt to state it simply, because if you understand the problem, then you're going to see the solution clearly as well. If it doesn't make sense the first time you read it, try reading it again. Eventually, the whole picture will sink in...

A quick history of money

1) Once, gold and silver were considered the only ''real'' money, but it was heavy and risky to carry around...

2) So people paid goldsmiths to store the money, and got paper receipts for it...

3) After a while, people used the receipts like money, and left the gold in the bank most of the time. So the bankers got clever and came up with a scam...

4) The banks printed off receipts for more gold than they actually had, and ''loaned'' those receipts out to charge interest on it. They had to keep the truth about how much gold they really had a secret and hope that not too many people would ask. This let them make a lot of money charging interest, because they could charge interest on MONEY THEY DIDN'T HAVE.

An analogy can be made using property and titles. Here's the scam in another way:

Step 1: Acquire a vacation home,
Step 2: Sell the title to the home to one person,
Step 3: Sell the title to the home to a DIFFERENT person,
Step 4: Hope they both don't show up on the same weekend!

Fractional reserve banking lets a bank say to a depositor that all his money is safe and sound at the bank, while at the same time they get to loan most of it out to someone else to charge interest on it. So there are two people with a legitimate claim to the same pile of money. So whose is it, really? And where is it?

It gets stranger: when a borrower gets their money, it will end up deposited into a bank as well. This money then becomes backing for another loan, and that loan gets deposited, becoming backing for yet another. If you do the math, you will see that far more money is on deposit in all the banks than existed in the first place! Where does all this money come from? The answer: It is simply CREATED. Since money is not gold, but only paper, banks can ask the Federal Reserve system to just make more!

The story of the vacation home is a good analogy of how banking works today, except for one important thing: there is no home. Without gold, silver, or some other commodity backing it, we have all been trading titles to property that doesn't exist! Paper backs paper, and all they represent are promises to pay. This is the reality of money, and is quite different from how most of us expect it to be.

What's the result?

1) Loaning money while claiming it is still on deposit increases the money supply, essentially creating more money (otherwise deposits would vanish). In essence, for the bank to have your cake and loan it too, it must create more cake. This increase in money supply is the cause of inflation.

2) Almost every dollar that exists is owed to a bank somewhere, because at some time in history, it was created when it was loaned out.

3) The amount of money owed to banks is more than all the money in existence! So we cannot possibly get out of debt under this system. The bulk of this debt is in the form interest, which is an arbitrary amount of money banks demand in return, but never gave.

4) There is no money, in the real sense. Just checks, data stored on computers, and promises. It is all created by typing on a keyboard, and signing signatures. The only tangible assets in regard to money anymore is the collateral we pledge when we ask for a loan. The money they loan you comes from nowhere, but the assets you lose in foreclosure are real!

5) Because the US government borrows from the Federal Reserve, bankers have the power to influence our society and government by controlling finance. They decide to create (or not create) money depending on who's asking, and for what. They choose what projects get funded, and let other needs wither on the vine by starving them of working capital. This subtle yet immense power is more than enough to undermine democracy, and guide the course of a nation's history.

So what's the solution?

Simple. The public must demand that money must not be created by loaning it into existence. It must be something that is openly and publicly controllable, issuable, accountable, and interest-free. Otherwise, a class of parasites will rise to power in society by cleverly disguising the fact that the money they are creating, spending, and controlling us with is MONEY THAT ISN'T EVEN REAL.

Donna Glass
Jul. 26, 2008

Tell me an income-producing asset that I should buy right now for, say, $20,000.

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