Ken Okazaki Blogging is serious business

19Jul/101

Drip drip drip

Some people seem to be able to save up large amounts of money while others are always flat broke. Sometimes these people are receiving the exact same salary, so what gives?
First of all, understanding the intrinsic difference between an asset and a liability is a must. If you haven't read it yet, pick up a copy of Rich Dad, Poor Dad by Robert Kiyosaki.

Put simply, an asset is something that puts money IN your pocket while a liability is something that COSTS money to keep. For example if you own your own house and are living in it, it's a liability. If you own the car you are driving, it's a liability. If you own a house and are renting it out, it's an asset. If you own stocks, it's an asset. If you have capital, it's an asset as long as you are investing it.

My dad told me something the other day that I thought was very interesting:

Suppose your only source of water is a dripping tap, and you have a glass to drink out of. Most people will hold their glass under the tap and let it fill until about half, just enough so that they can enjoy a drink of water, and then hold it there again until it fills enough to be satisfying.

A wise investor however, will hold his glass under the tap until it fills completely, and then let it overflow and drink only what drips down from the full glass.

Wise investors NEVER spend their capital, only invest it. Spending your capital is like a farmer eating his seed corn, or drinking the water needed to prime the pump. Just don't do it! Find worthy investments that will bring you income while at the same time increasing your capital so that you can invest in bigger things in the future.