Why get your knickers in a knot over Robert Kiyosaki?

Flexo over at Consumerism Commentary is getting his knickers in a knot over Robert Kiyosaki’s definition of “asset” and “liability”:

A house, like any other object that comes into your possession, is classified as an asset. An asset is something you own. A house has a value. Whether you assign the value as the price at which you purchased the house or the price at which you believe you can sell the house, that amount is how much your house is worth.

You can offset the value of the asset with the value of the mortgage, your liability. Your house, an asset, subtracted by your remaining mortgage, your liability, results in your wealth due to your house. That’s commonly called your “equity,” but that has a murky definition, too.

So why do so many people claim that your house is a liability if it’s clearly incorrect from a financial standpoint? Most of this stems from one personal finance “guru.” Robert Kiyosaki, a successful marketer of products, believes an asset is anything that provides cash to you, while a liability takes your cash away. These are not the traditional meaning of the words, but this establishes a framework for the ideas Kiyosaki tries to sell. Kioysaki believes you should strive to increase the assets that provide positive cash flow (Kiyosaki-assets) and reduce the assets that require negative cash flow (Kiyosaki-liabilities).

The concept is sound, but Kiyosaki’s use of the words “asset” and “liability” angers those of us who understand finance and prefer not to confuse the general public by redefining words.

First of all, let me put on the record that (a) I like the general thrust of Flexo’s blog, and (b) he is ‘technically’ correct in what he says here, BUT …

… Robert Kiyosaki is simply trying to make a critically important point (in his famous book Rich Dad, Poor Dad) that I covered in my earlier post on this subject:

Poor Dad vs. Rich Dad

My Poor Dad Says My Rich Dad Says
“My house is an asset.” “My house is a liability.”
Rich dad says, “If you stop working today, an asset puts money in your pocket and a liability takes money from your pocket. Too often people call liabilities assets. It’s important to know the difference between the two.

I guess that Kiyosaki could solve the problem by saying that “My Poor Dad says that my house is an Asset, but my Rich Dad says that the mortgage is a liability” … but, that doesn’t really present the view that you can have a fully paid off house and still live like a pauper (asset rich … cash poor).

Also, I could point you to the Merriam-Webster Online Dictionary definition of ‘Liability’ (“one that acts as a disadvantage” “drawback”) and state the obvious i.e. Kiyosaki is using the general definition, not the financial definition, but that’s not the point either …

… regardless of definitions, I feel that the ‘issue’ of taking a technical term and ‘bending’ its use in order to make a point that could mean the difference between your future financial success and failure is a relatively small one … as long as you understand that there is a technical definition of the term as well, just in case you do need to converse with professionals (who are all trained to talk in your lingo, if necessary, anyway) 🙂

So, can you live with two definitions – a technical one and a ‘functional’ one?

Calculating your Investment Net Worth

I found a site that I really like; it’s called Net Worth IQ and it’s a social network around calculating (& sharing if you feel so inclined) your net Worth.

 To be conservative in calculating your Net Worth, you should LEAVE OUT:

a) Any ‘equity’ in your house that you NEVER intend to release as investment (i.e. borrow against for purchasing, when the timing is right, income-producing-buy-and-hold-investment-real-estate).

b) Any supposed ‘equity’ that you have in your business.

Let’s call the result your INVESTMENT NET WORTH …

 It’s the only one that matters!


Well,there are only TWO reasons to even bother calculating your Net Worth:

1. To ensure that your ‘portfolio’ matches the Rules of the Rich (e.g. the 20% ‘rule’ on home equity that I talk about in a recent post), and

2. To check whether your INVESTMENT NET WORTH (which should be in passive income-producing investments by then) can FUND your ideal retirement with at least 99% chance that your money won’t run out before you do.

I must confess that for the purposes of the Net Worth IQ site … I broke those two rules, so I should lower my Net Worth by approx. $2.5M, and I may make that change later – I haven’t decided yet.

BUT, I have already done the calcs and am acutely aware that my INVESTMENT NET WORTH can EASILY fund my retirement starting next year (I’ll be 50 … now, that’s old, Man!).

If this makes sense to you … check out some Tips that I have already left on that site and this blog.

Now, what’s YOUR Investment Net Worth … more importantly, can it fund your IDEAL retirement?

The greatest advice from the Oracle of Omaha

As the latest in my ‘videos on sundays’ series, I offer some advice from the man billed as the ‘greatest investor who ever lived’.

 In 7 minutes you will have ALL of Warren Buffet’s secrets 😉

… maybe not, but you WILL have some insights into his life (the first three minutes) followed by some of the best investing advice that I have seen.

Warning: some of these slides flash across your screen so fast that you will have trouble following them, so pay attention to the very last two slides if you are not an expert investor:



If you are a student of investing, have a long-term view and are willing to dedicate some time and effort, take note that Warren offers exactly the opposite advice for you …

Wide diversification is only required when investors do not understand what they are doing.
Warren Buffett

… he also points to this time in history as being possibly a great time to make your fortune:

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Warren Buffett

I see a lot of doom and gloom … I bet that Warren Buffet is gearing up for something big …

What are you doing right now?

To buy a new(er) car … or not?

Should you upgrade your car … or simply keep the one that you have … you know, the old rust-bucket that gets you from A to B but not in any sort of style?
Is the vehicle a TOOL OF TRADE? Is it an ESSENTIAL requirement for your business (e.g. if you are tradesman, you need clean/reliable/fuel-efficient transport)?
Or, is it simply a mode of transport for you and your family (in which case you have MANY transport options to choose from: new v. second-hand vehicles of all shapes and sizes; public transport; etc.)?

If it is simply ‘transport’ then by hanging on to your old ‘rust bucket’ (within reason), you have made a GREAT choice!


A car is NOT an asset, it’s clearly a liability … as Robert Kiyosaki says in Rich Dad, Poor Dad, the definition of an:

ASSET is simply something that puts money INTO your pocket, and a

LIABILITY is something that takes money OUT of your pocket.

The ‘rule of thumb’ is that you should INVEST (into real long-term ASSETS) 75% of your Net Worth: a max. of 20% into your house, and the remaining 5% into your ‘stuff’ …

… once you pay for a new(er) car, it doesn’t leave a lot left for other ‘stuff’, does it?