We think of our homes as the biggest most important investment of our lives. It’s so cemented into our culture that owning your own home is synonymous with the American dream.
However, be careful not to overinflate what your house can do for your financial standing.
Recently, I decided to pick up a copy of Rich Dad, Poor Dad by Robert Kiyosaki. I’d seen that book on shelves for year, but had never ventured to check out. In short, Kiyosaki advocated for investing in assets that create a return for you, instead of spending your money on consumables that cost you money.
One big point of interest is that Kiyosaki places your house in the liabilities column instead of the asset column. The reason for that is that your home will never provide you with an income. You will likely take out a mortgage, pay your house off throughout your working career and then own your home.
What’s interesting about this perspective is that whether you buy something conservative and well within your budget or you stretch to buy your ultimate dream home, your home never pays you back.
Putting more towards an expensive home instead of investing for your retirement would be counterproductive because your investing is what ultimately adds to your asset column and provides for your retirement.
Your home going up in value is a great thing, and you’ll have gained a substantial amount of equity, but your home going up in value doesn’t put you at any more of an advantage to move to another house as before. You’ll simply put the equity that you’ve earned from your house into the next one and keep going on the payment. So even if your home were to double in value, it’s likely that other homes will have doubled in value as well.
On the other hand, Kyosaki encourages you to invest in assets to build real wealth. Assets can be anything that creates more money for you when invested.
The most common way would be to invest enough in your retirement funds that your nest egg can provide you with an income by the time you retire.
However, you’ll see a lot of other ways that your money could be invested to create an asset. Real Estate, for example, can be an income producing asset when you have renters or you have the opportunity to sell later on. Building and buying businesses are another example.
The point isn’t that you shouldn’t buy a home. We love being home owners. However, it’s important to realize that your home is not, as Kiyosaki puts it, an asset. Your home is a great purchase, one that is worth making. Just keep in mind a more realistic idea of what your home purchase really is when you’re making it, a purchase.
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