We’ve been looking at the mindset and actions that separate the merely middle class from the rich. The employee mindset, says author Robert Kiyosaki, is focused on renting out your time for wages. The owner mindset is about earning money from cash generating assets.

You might think your house is a great asset, but is it?  An asset is something that puts money in your pocket.

A standard house mortgage is effectively a hole into which you will pour money for the next 20 or 30 years (the word ‘mortgage’ is a French one meaning ‘agreement until death’).

Your house is an asset, but mainly for the bank that loaned you the money. It generates cash for years to come from interest. And it’s virtually risk free. If you stop paying the mortgage payments the bank moves in, sells the house and gets its money back.

The familiar pattern is, if your income goes up, buy a bigger house and take on more debt. You look richer, but nothing has changed. You’re still putting all your money into something that’s making money for someone else.

It’s probably better to own a house than rent forever. But your house is not an asset unless you own it outright and are about to sell it. (Then you still have to buy somewhere else to live). Otherwise, it’s a liability.

People on the left side of the cashflow quadrant tend to blame others for their plight. But the real problem is a lack of knowledge about money. They believe ‘your house is an asset’ or ‘you need money to make money’, without ever really looking at the facts.

Investors and business owners have become successful by trusting facts. If you want to work for others, you don’t need to be knowledgeable about numbers. Most people put money into what looks or feels good to them. The smart investor creates a picture of an investment from the numbers alone. 

The educated sneer at the power and freedom of the rich. Advanced degrees = sense of entitlement. But capitalism favors those with financial intelligence. Young Kiyosaki read books on economic history (including bios of Rockefeller, JP Morgan and Henry Ford) plus the great economists and economic trends.

Wealth, over time, flows from people on the left of the quadrant to those on the right. When legislation changes or markets crash, those on the right lie in wait to seize assets (as Kiyosaki did when there was a property crash in the US and he bought real estate cheaply).