RICH DAD’S RULE: BUY ASSETS NOT LIABILITIES

In Robert T, Kiyosaki’s best selling book “Rich Dad Poor Dad”, he tried to explain the difference between assets and liability as:

“Rule One. You must know the difference between an asset and a liability, and buy assets. If you want to be rich, this is all you need to know. It is Rule No. 1. It is the only rule. This may sound absurdly simple, but most people have no idea how profound this rule is. Most people struggle financially because they do not know the difference between an asset and a liability.”

Rich people acquire assets. The poor and middle class acquire liabilities, but they think they are assets.

The definition of an asset is anything that puts money in your pocket, and a liability is anything that takes money out of your pocket.

I will give an example of what our people acquire thinking they are assets yet they are liabilities eating them up. A residential house (emotional asset) you are living in is more of a liability than an asset since it's not earning you any money. You may not be paying rent but the cost on the money you used to put up the house is much higher than the rent you would have paid for the same house. The cost of money in principal is the interest rate of a commercial bank and here it is about 25% per annum. A car taking you to work and dropping your kids to school is another liability you have acquired thinking its an asset.

What is an Asset

A business making a net profit margin is an asset and that one you can acquire and nurture to full development. When you build a house in say Ntinda at about UGX 600m and gets you a rental income of UGX 2.5m per month you will have gross annual revenue UGX 30m which translates to about 5% annual gross return on investment. But remember the cost of money is 25% P.A. so you will be losing 20% of your money per year. This becomes a bad investment.

Yet if you have a small grocery shop, restaurant, salon, pharmacy, etc. in any suburb of Kampala you can net minimum 3% per month giving about 36% P.A. Again, with this you are making about 16% per year and this gives us the actual definition of an Asset.

So am asking Ugandans to acquire more assets, not liabilities as we have done it here.

ACQUIRE ASSETS

DIFFERENCE BETWEEN A BUSINESS AND AN INVESTMENT

Residential Houses are investments having a low
return on investment

People have tendered to confuse businesses and investments. The two are assumed to mean the same thing.
A business is an entity you create to multiply or grow your capital fast like a retail shop, salon, restaurant, bar, cafe, fuel station, butchery, bakery, etc. These entities because of their daily sales can multiply your capital due to stock turnover.

Apartment units also have a low return on investment

The RICH have known this and are busy establishing many business outlets that are making daily sales. We all need financial freedom to be able to sustain our lifestyles. The advantage with such businesses is that if you're making frequent banking's you will have a nice account portfolio and your bankers will be willing to extend credit to expand your business.
This is how the RICH in Uganda have managed to grow their businesses from a roadside stall to a multinational business and gotten financial freedom.

An investment, on the other hand, is an entity established to secure your money against inflation and as collateral i.e in real estate if the investors want loans and mortgages. The return on investment with investments is low and cannot build your capital.

Businesses have a high return on investment and
can grow your capital much faster

The POOR and MIDDLE Class have started their business career with investments especially real estate. Many people in Uganda after making a saving they rush to build a house with the false hope that he is secure in terms of not paying rent. It's good to live in your own house but you also need to have a good source of income that can cater to your domestic needs. With a business like the RICH have you will be able to cater to your domestic needs and build your capital to eventually invest.
Robert T. Kiyosaki of "Rich Dad Poor Dad" in one of his books Cash Flow Quadrant explains that people on the right side quadrants have people and money working for them. So as a business owner you need to know how to manage people to be able to make money for you. Then the investors must also learn how to make money work for them.

In conclusion, Uganda needs more businesses and operators with a view of building their capital, create jobs and then they can finally invest in real estate, stocks, bonds, and treasury bills.