Myths that Keep You Broke #17
Myth #17 - I Want a Big House:
I was recently out to dinner with my teenage grandsons and they asked me how you become a millionaire. My older grandson, who lives in an expensive city where the average home price is close to a million dollars, was trying to figure out how he could afford his own home one day. To prepare for his high school graduation next year, he was asking about the college majors, careers, and paychecks of the wealthy. I am sure at this point you can imagine what my answers were to paychecks versus building wealth. But then he asked if he is able to buy a million dollar house, does that make him a millionaire.
Let me explain: When your CPA or Financial Planner says your house is an asset, yes that is listed in the column under assets on a balance sheet, but it is not an investable asset when discussing financial freedom. It is a personal use asset.
An investable asset is something you own that generates income. These are assets that allow you to choose to work instead of having to work.
Examples of investable assets are money you have in your savings account, stocks you own, bonds that pay interest, real estate investment trusts, triple-net-leases, tax liens you own, life settlement investments, annuities, apartment buildings, office buildings or an operating and profitable business.
If my grandson buys a million dollar home one day and lives in it, regardless of whether or not it appreciates in value, that is a personal use asset. If he sells it, even for a profit, he will still need to buy another house in which to live. And even after he pays off the mortgage, he will still have property taxes to pay, insurance, utilities, repairs, and maintenance in order for him to continue to live there and for it to retain its value.
The place where you live creates expenses, not income – unless you rent out some portion of your personal property on a daily, monthly, or annual basis.
I now realize how lucky my seventeen-year-old grandson is to learn now what I didn’t fully understand until I was close to fifty. This is why I feel it is so important to pass this knowledge on to you.
It is never too early or too late to learn how to buy things that make you money and build wealth, not just the things that take your money. In understanding this difference, we are one step further on the road to wealth, rather than just owning things – even if it is a million dollar home.
To Your Prosperity,