Turn Assets Into Income

Dear Reader,

Did you know, you get a tax break for buying a house and going into debt, but you don’t get a tax break for saving money?

Have you ever wondered why?

I’m not sure either, but I imagine that one big reason is because your savings are a liability to banks. Why would they ask the government to pass a law that would encourage you to put even more money in their bank, money that is a liability to them?

Besides, banks really don’t need your savings. They don’t need much in deposits because they can magnify money at least 10 times. If you put $1 in the bank, by law, the bank can lend out $10 and, depending upon the reserve limits imposed by the central bank, possibly much more. That means your single $1 suddenly becomes $10 or more. It’s magic! When my rich dad showed me that, I fell in love with the idea. At that point, I knew that I wanted to own a bank and not go to school to become a banker.

On top of that, the bank may pay less than one percent interest on that one dollar. In better economic times, it could be five percent and you, as a consumer, would feel secure because the bank is paying you something on your money. Banks see this as good customer relations because, if you have savings with them, you may come in and borrow money too. They want you to do this because they can then charge nine percent or more on what you borrow. While you may make less than one percent on your $1, the bank can make nine percent or more on the $10 of debt your single dollar has generated. Recently, I received a new credit-card offer that advertised 8.9 percent interest. But since I understood the legal jargon in the fine print, I saw it was really 23 percent. Needless to say, I took a pass.

They Get Your Savings Anyway

The other reason they don’t offer a tax break for savings is more obvious. If you can read the numbers and see which way the cash is flowing, you’ll notice that they’ll get your savings anyway. The money you could be saving in your asset column is flowing instead out of your liability column in the form of interest payments on your mortgage. This ends up in the bank’s asset column. The cash-flow pattern looks like this:

That’s why they don’t need the government to give you a tax incentive to save. They’ll get your savings anyway in the form of interest payments on debt.

Politicians aren’t about to mess with the system because the banks, insurance companies, building industry, brokerage houses, and others contribute a lot of money to their campaigns, and the politicians know the name of the game.

Money Is Debt

Rich dad explained that even our currency isn’t an instrument of equity, but an instrument of debt. Every dollar used to be backed by gold or silver is now an IOU guaranteed to be paid by the taxpayers of the issuing country. As long as the rest of the world has confidence in the American taxpayer to work and pay for this IOU called money, the world has confidence in our dollar. If that key element of money, confidence, suddenly disappears, the economy comes down like a house of cards.

Take the example of the German Weimar-government marks that became utterly worthless right before World War II. As one story goes, an elderly woman was pushing a wheelbarrow full of marks to buy a loaf of bread. When she turned her back, someone stole the wheelbarrow and left the pile of worthless money all over the street.

That’s why most money today is known as “fiat” money, money that cannot be converted to something tangible like gold or silver. Money is only good as long as people have confidence in the government backing it.

Today, much of the global economy is based on debt and confidence. As long as we all keep holding hands and no one breaks ranks, everything will be fine. By the way, the word “fine” is my acronym for “Feeling Insecure, Neurotic and Emotional.”

Why People Struggle Financially

Would you believe that most people will be in debt from the day they leave school until the day they die? It’s true. This is the average middle-class American’s financial picture:

If you now understand the game, then you may realize that those liabilities must show up on someone else’s balance sheet as assets, like this:

Anytime you hear these words, “Low down payment. Easy monthly payments,” or “Don’t worry.The government will give you a tax break for those losses,” then you know someone is luring you into the game. If you want to be financially free, you’ve got to be smarter than that.

Most people don’t have anyone who is indebted to them. They have no real assets (things that put money in their pocket), and they’re often indebted to everyone else. That’s why they cling to job security and struggle financially. If it weren’t for their job, they’d be broke in a flash. In fact, the average American is less than three paychecks away from bankruptcy. They seek a better life and get run over by the game because the deck is stacked against them. They still think their house, car, golf clubs, clothes, vacation home, and other doodads are assets. They believe what someone else tells them because they can’t read financial numbers to see the truth for themselves. Most people go to school and learn to be players in the game, but no one explains the rules to them.

No one tells them that the name of the game is: “Who Is Indebted to Whom?” And because no one tells them that, they are the ones who become indebted to everyone else.

Robert Kiyosaki

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Robert Kiyosaki

Robert Kiyosaki, author of bestseller Rich Dad Poor Dad as well as 25 others financial guide books, has spent his career working as a financial educator, entrepreneur, successful investor, real estate mogul, and motivational speaker, all while running the Rich Dad Company.

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