Why You Need Money to Live a Full Life
When people ask why Kim and I were homeless, I tell them it was because of what my rich dad taught me about money…
You see, for me, money is important. But I didn’t want to spend my life working for it. That’s why I didn’t want a job. If we were going to be responsible citizens, Kim and I wanted to have our money work for us, rather than spend our lives physically working for money.
My highly educated dad, who I call my poor dad, had a strong belief that the love of money was evil and that excessive profit meant you were greedy. He felt embarrassed when the newspapers published how much he made because he felt he was overcompensated in comparison to the teachers who worked for him.
He was a good, honest, hardworking man who did his best to defend his point of view that money wasn’t important to his life.
My rich dad helped me break free of that mindset…
Money Supports Life
My rich dad had a different point of view. He thought it foolish to spend your life working for money and to pretend that money wasn’t important.
Rich dad believed that life was more important than money, but that money was important for supporting life.
“You only have so many hours in a day, and you can only work so hard. So why work hard for money? Learn to have money and people work hard for you, and you can be free to do the things that are important.” To my rich dad, what was important was:
- Having lots of time to raise his kids.
- Having money to donate to charities and projects he supported.
- Bringing jobs and financial stability to the community.
- Having time and money to take care of his health.
- Being able to travel the world with his family.
“Those things take money,” said rich dad. “That’s why money is important to me. Money is important, but I don’t want to spend my life working for it.”
Rich dad wanted me to find the power to create money, rather than to work for money. He taught me not to need money. “If you don’t need money,” rich dad said, “you will make a lot of money.”
Where Does Money Come From?
It sounds like a dumb question, but you’d be surprised by how many people don’t know the complete answer to it.
Often, when we’re growing up, we don’t get the chance to think about money in concrete ways. When we’re born, all of our needs are taken care of. As if by magic, food appears on the table and we have clothing, heat, water, and electricity. The phone works when we pick it up.
As a child, we don’t always connect the dots between our parents leaving for work in the morning and their coming home at night with all the clothing, supplies, and food the family needs.
Then as we grow up, we realize that all of these things don’t appear by magic. They’re paid for with money. Somehow, money enters the picture, but we don’t always see all of the ways that this happens. It’s not all in the paycheck.
There are three ways to earn money. Going out and working at a job is one of the ways. It’s the most direct and the most visible way, so it’s the one that people think of first.
But there are two other ways to make money that are more effective…
Passive income is earned even when you’re not physically doing any work. Money made from rental real estate is passive income. This is how I made my money for many years, and it is an extremely good way. I bought apartment buildings, and then leased the apartments to people who paid me every month to live there.
Passive income can also come from businesses that you set up that someone else runs on a day-to-day basis. The comic-book business that I set up worked this way.
Passive income can also come from royalties — income that comes from writing a book or a song or from appearing in a commercial that is on TV or the radio. Every time a book is sold, a song is sung, or a commercial is aired, the people who were involved usually get some money. Sometimes the money is just a few pennies, but those pennies can add up to become a lot of dollars.
Rich people are usually good at generating passive income. Their money is working for them while they’re working in other ways — managing their portfolio, starting other businesses, or simply enjoying their lives.
If you have money invested in paper assets (stocks or bonds), you have portfolio income. Portfolio income works on the same principle as passive income. Your money is working for you even when you’re asleep.
Rich dad often told me, “The key to becoming rich will be your ability to convert ordinary earned income into passive income and portfolio income.”
He also told me that the taxes are highest on earned income and lowest on passive income. When he told me this, it was clear that the best kind of income was the kind that worked hardest for me and cost me the least: passive or portfolio income.
Knowing the best kind of income to generate is probably the second most important thing we needed to remember.
The Only Thing You Need to Remember
Rich dad taught me that if you wanted to be rich, there was only one thing we needed to remember: “Know the difference between assets and liabilities,” he said, “and buy assets.”
He said, “Rich people acquire assets, and the poor and middle class acquire liabilities that they think are assets.”
When we truly know the difference between an asset and a liability, we’ll be able to start buying real assets. And you’ll be able to keep your asset column strong and you’ll be able to live a full life.
Play it smart,
Editor, Rich Dad Poor Dad Daily