There are two types of expenses: expenses on capital needs, and expenses on concurrent needs. In financial terms, this refers to assets and liabilities. Another way to say this is that assets put money into your pocket through your basic investment and do not require you to keep spending to maintain the investment. Liabilities are those things that require you to keep spending. They take money from your pocket after an initial investment. What we want to stress is this: Never invest in liabilities, but only in assets.

Let’s tell you a story: An African pastor in the united states, was celebrating a major event in his church. Eight families from his church bought their own houses and no longer had to spend money on rent anymore. They had been saving money to buy a house for fifteen years after having arrived in America. Now they were rejoicing. About 90 percent of us would do the same thing. These people spend fifteen years of saving and celebrated the fact that they would not have to rent houses anymore. They just spent all their savings buying their first homes.

Rich people, however, would never tell you to spend money like that. They buy houses, cars, and other expensive items, but not by using their original capital. They use profit from investments that have produced ten times their original capital amount. They do not spend their last money on liabilities, on expenses that do not produce more money for them, and they never used borrowed money to do so. Borrowed money is only to multiply capital! The rich would rather rent out that house for money flow and live in a modest apartment until the house generates enough to buy additional assets (Another house), or even several other houses.

Yet these families who spent their life savings on homes still live in those homes, which lead to more liabilities. They pay for the maintenance of the house and meet their bank loans every month. But they do not make money on the house. Most people would have handled this like these fellow Africans. They spend their last money buying houses and remain poor for the rest of their lives while paying off debts. In essence, they have become slaves to these houses and banks, sometimes working two or three just to keep up.

Hope we were able to learn one or two things.
We will continue from here in our next post.

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