Assets And Doodads Lyrics

And, in fact, in Max's case, he doesn't have what the biggest doodad typically is: a home

What do you mean?

A home

A home is a doodad

Exactly. Again, the definition is: an asset is an asset if it puts money in your pocket

Your home isn't likely to be putting money in your pocket

But it's the American dream, Diane

Absolutely, it's the American dream

And what it is, is the banker's dream

Because you get to make payments to the banker

No, seriously, and a home can actually be an investment

If the equity in that is converted to an asset that creates income

In other words, I've seen people have a house they've lived in for a number of years

And have built up a large amount of equity

Now, equity is defined as the difference between what the house is worth

And what the mortgage is

So, they have a lot of equity in their home

They have the possibility of selling that

And then buying a more modest home

And taking the difference to buy a property that can put money in their pocket

So, there is a potential asset here

But meanwhile, it's just a doodad

And many people, though, Diane, don't they go out and get second mortgages

Third mortgages, and they say"OK, I'm going to borrow this money against my house at nine.5

And I'm going to go out and buy stock, and I'm going to buy something else"

And what happens is they end up getting deeper in debt, don't they?

In fact, Sharon, we see a great example of that in the next step

And you can reference that at page three-35

It's the story of Dale and Susie

I'm going to leave that for later

But it's a very interesting story of what can happen

But we're not saying don't buy a home

We want you to have a home. We have homes. We have lovely homes

The issue is we bought a home that we recognized upfront was not our asset

Certainly, we hope that it will appreciate in value

But the value of your home is an opinion

You only realize that value when you sell it

So yes, many people do buy homes in the hopes that they will appreciate

But every month, does that home generate income for you?

I think the answer is no

But every month, you pay your mortgage payment

You pay your yard service (or you're out there doing it yourself)

And you pay your utilities bill

That house is a liability if you look at it based on Rich Dad's definition

Is it an asset or a liability?

And that's what we want you to understand

We want you to own a home

We want you to own a home as big as you want it to be

But recognize that it's not an asset

And you need to be able to build assets so that the assets help you pay for your home

In fact, the theory of preparing the financial statements

Is not to tell you you must do this or you must not do that

It's basically just putting the right words and the right definitions for what you have

By the way, the very wealthy have huge doodads

And it all has to do with the percentage of doodads to the even huger percentage of assets they have

Two other comments on Max's statement

Actually, we don't see them for the real estate and for the business value

However, in your case, as you go through to work on your financial statement

You might actually have these items

Real estate as an asset would be, again, not your home

This needs to be something that's putting money in your pocket

For the asset value, you need to list what the fair market value is

In other words, what realistically you could expect to sell this for

And subtract from that the current mortgage or mortgages on that property

That is the equity you have in the property

And that's also called the net value

So, on the asset line, we want to show the net or equity position in the real estate

Likewise, Diane, in the income section related to those assets

We want you to list the net amount of income or loss that you receive from each of those assets

Think of it as if you have a property manager (thank God) who is actually doing the accounting for you

They're receiving the rent, they're paying the expenses

And they're sending you a check at the end of the month

What you want to calculate is the monthly net income or loss

Hopefully income, from each of those assets

It's either passive income from real estate or passive income from businesses

Thank you, Sharon

Also, on the asset side, you'll show the business value

Now, this might be a little more difficult to assess

What this means is a business that you own that you could sell

And unfortunately, there's a lot of businesses that people have or that they call businesses

That are really nothing more than just a way for them to get paid, not through a W-two

In other words, there's no asset there to sell

So realistically, what could you sell?

Now, think about who would want to buy your business

Do you truly have a market?

Is there someone who could step into those shoes and would pay you money for the business?

If so, then you do have a value to the business

From that amount, subtract any debt that the business has

Separate from your personal debt

This would be the business credit line

It would be business credit cards

It might be a copier you bought on time

Whatever the total debt is in the business against the value if you were selling it

And this is where you really need to be honest with yourself, Diane

It's one of the areas that's most confusing, even for me, oftentimes

If you look at the cash flow quadrant

Many people who find themselves in the S quadrant consider themselves a business owner

And the distinction between the S quadrant business owner and the B quadrant business owner is a distinct line

If you are an S business owner, you own a job

You have to be there. That business is dependent on you and your efforts

Now, if you're a B business owner on the right side of the cash flow quadrant, it's wonderful

That's when the definition and the question

If you're not sure which one you are, ask yourself this question

Can you leave that business for a year, a whole year

And come back and find that business stronger and even bigger than when you left?

If the answer is yes, that's a B business

If the answer is no, that's an S business

So, in determining the net business value that you put in your asset column

It still may be appropriate for your S business

But remember, the income you earn from your own efforts are income that is in the first section of the income statement: earned income

The only business income that you have related to that asset is what you earn from the business itself, not through your personal efforts

So, many times, an S business owner truly doesn't have an asset as a business

They have a job

In fact, though, a business can provide every type of income to you

You can have a job where you receive money from your own business

It can be giving you a flow of income through the efforts of others, not your own

It can be paying you rent so you receive income through real estate

It can be paying you royalties for intellectual property

So it's possible through a well-set-up business to operate it so that you get many types of income

And you actually operate from more than one of the cash flow quadrants

Remember again: E, S, B, and I

Each one of those can be operated through your own business

And you remember Rich Dad's recommendation was: build your business

And let your business help you buy your assets

So it's building a business from the very beginning concept of an idea through a thriving business

And then you'll be able to utilize the income that you receive from that business to buy other assets such as stocks, real estate, and securities

That's the magic formula that Rich Dad used

It's the magic formula that Robert has used

And it's the magic formula that we're going to talk about more as we get further into this section.