Blog | Personal Finance

The Other Side of the Coin

How the rich use expenses to get richer

When I say the word "expenses," what kinds of feelings arise in you? Many people feel a sense of anxiety, or they may feel a little bit of fear. Certainly most people aren't comfortable with the idea of expenses. Why is that?

For most people, expenses are things that take away our money. They are obligations rather than opportunities. For some, they are the things that put them in the red month after month.

But there are different ways to look at expenses.

Seeing through the expense column

Rich dad often said, "It is through the expense column that the rich person sees the other side of the coin. Most people only see expenses as bad, events that make you poor. When you can see that expenses can make you richer, the other side of the coin begins to appear to you."

He also said, "Seeing through the expense column is like going through the looking glass as Alice did in Alice and Wonderland."

When I was young, rich dad taught me how to utilize the expense column to make myself richer.

"By having a plan to be rich and understanding the tax laws and corporate laws, I can use my expense column to get rich," he said to me. "The average person uses their expense column to become poor. If you want to be rich and stay rich, you must have control of your expenses."

Ways the expense column makes you richer

The reason most people become poorer through the expense column is because they spend their money on liabilities that take money out of their pocket-things like expensive cars, vacations, clothes, and more.

The rich buy these things as well, but they also buy things that make them money-assets that pay for their liabilities.

When Kim and I were first married, we committed to making our investing an expense in our budget. Each month, we paid ourselves through our expense column the money we needed to save up for and purchase assets that would provide us cash flow. This was an example of an expense that made us rich. Not only did the asset generate income, but it also was passive income that is taxed the lowest, so it also saved us money in taxes.

Another way our expenses make us richer is by purchasing as much as we legally can through our businesses-things like eating out, travel, phones and computers, and more. All of these things that we need, and that almost everyone needs, can be purchased by our business against our income. The result is we pay much lower taxes.

A final example of how the expense column can make you richer is real estate and depreciation. Each year, for all our rental properties, the IRS allows us to take a portion of our property and write it off as depreciation. It is an expense that is really income because it costs us nothing but saves us money in taxes.

High expenses > high income

If you understand these examples, then you will understand why rich dad-and Kim and I-wanted low income and high expenses. That is our way of getting rich.

"Most people eventually lose their money and go broke because they continue to think like a poor person, and poor people want high income and low expenses. If you don't make the switch in your head, you will always live in fear of losing money and will try to be cheap and frugal, rather than be financially intelligent and become richer and richer. Once you can understand why a rich person would want high expenses and low income, you will begin to see the other side of the coin."