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