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gjm comments on The 5-Second Level - Less Wrong
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I have the same debt-flinch, and the same feeling about how well it works, but with one qualification: I was persuaded to treat mortgage debt differently (though I've always been very conservative about how much I'd take on) and that seems to have served me very well too.
This isn't meant as advice about mortgages: housing markets vary both spatially and temporally. More as a general point: it's probably difficult to make very sophisticated flinch-triggers, which means that even good flinching habits are likely to have exceptions from time to time, and sometimes they might be big ones.
Agreed. Kiyosaki's "Rich dad Poor dad" has lots of good advice about the difference between "good debt" and "bad debt".
AFAI recall it boiled down to "only borrow money for assets, not liabilities"
ie - good debt is borrowing for things that will continue to make you more money (including your appreciating house or your business) and bad debt is for things like holidays or house redecorating projects - things that simply take cash our of your hand.
This has worked pretty well for me so far too.
Only borrow money for assets, not expenses.
The book defines a liability as "something that takes money from your pocket" - so the two can be considered roughly equivalent.
OK, but that's not the standard definition of a liability used by accountants and such.
Yes, that is discussed in the book. He makes a big deal about the difference. In fact he discuses the seeming inconsistency of accountant putting large items into the "assets" column that do nothing but depreciate in value...
I'd argue that the main point of Rich dad, poor dad can be summarised as:
1) assets put money into your pocket, liabilities take money out of it 2) you gain wealth by adding to your assets instead of your liabilities
It's roughly equivalent to the dietary advice of "you lose weight by making sure there are more calories being spent than eaten"
Well, it makes me sad to see a very standardized and crisp term like "liability" used in such a confusing and nonstandard way. Especially when there is another equally crisp and very standardized term ("expense") that could be used instead. And I do not want to talk about it anymore.
Kiyosaki's "Rich Dad, Poor Dad" has also received some extremely harsh criticism, some of it at least from people who seem to have a clue what they're talking about. I haven't looked at it myself and am not a financial expert, but would advise anyone considering reading it and/or taking Kiyosaki's advice to exercise caution.
The same can and should be said about any book that purports to advise people on how to become rich.
I wish people were required to include in the appendix of such a book their net worth as independently assessed by an external audit and tax returns and other filings presented to show that they are wealthy and have actually gained that wealth in the manner described by the book.
Even then caution would still be needed as if markets are efficient (or even slightly efficient) then something that provided market beating returns 3-5 years ago (or however long it has been since they gained their wealth) should be expected to only provide market rates of return currently.
The classic takedown of Kiyosaki is from John T. Reed.
Thanks for the link. ok, that made me reconsider entirely. Lots of good points here.
I guess I liked the motivational tone of the book - but yep, it looks like his facts are not so hot (and in a lot of cases entirely fictional).
Is there any financial advisor or financial book that you can recommend without reservation and that people can take without exercising caution?
The classic is Andrew Tobias, "The Only Investment Guide You'll Ever Need." You can trust it because he's not selling anything and teaches common-sense, conservative advice: no risky speculation or anything.
Sorry, I was attempting to be clever, cynical and hip. This apparently impeded effective communication.
Let me rephrase it so that it is more difficult to misunderstand:
All financial advice should be received with reservation and taken with caution.
Better?
I doubt it. But there are some for which no more caution is needed than could be taken largely for granted with an intelligent bunch of people like the readership of Less Wrong, and some that aren't very approachable by anyone who isn't quite expert already. There's no need to say "exercise caution" about those. It appears that Kiyosaki's book is very approachable and may be very unreliable. That's an especially dangerous combination, if true.
Ramith Sethi: iwillteachyoutoberich.com
Kiyosaki is nice for some mindset and basic approach, but horrible on the concrete advise. Do not go into buying houses due to his books.
My small favorite is George Clayson: the richest man in Babylon. Then there is a galore of more modern books. Check out Ramiths recommended readings.
This is what my mother said to me: all types of debt are bad, but mortgage debt is unavoidably. My chosen career field is nursing, which is a pretty reliable income source, so I'm not worried about taking on a mortgage when the time comes.