The rich focus on their asset columns while everyone else focuses on their income statements.
In 1974, Ray Kroc, the founder of McDonald’s, was asked to speak to the MBA class at the University of Texas at Austin. A friend of mine was a student in that MBA class.
After a powerful and inspiring talk, the class adjourned and the students asked Ray if he would join them at their favorite hangout to have a few beers. Ray graciously accepted.
“What business am I in?” Ray asked, once the group had all their beers in hand.
“Everyone laughed,” my friend said. “Most of the MBA students thought Ray was just fooling around.” No one answered, so Ray asked again, “What business do you think I’m in?”
The students laughed again, and finally one brave soul yelled out, “Ray, who in the world doesn’t know that you’re in the hamburger business?” Ray chuckled. “That’s what I thought you would say.” He paused and then quickly added, “Ladies and gentlemen, I’m not in the hamburger business. My business is real estate.”
As my friend tells the story, Ray spent a good amount of time explaining his viewpoint. In his business plan, Ray knew that the primary business focus was to sell hamburger franchises, but what he never lost sight of was the location of each franchise. He knew that the land and its location were the most significant factors in the success of each franchise. Basically, the person who bought the franchise was also buying the real estate under the franchise for Ray Kroc’s organization.
Today, McDonald’s is the largest single owner of real estate in the world, owning even more than the Catholic Church. McDonald’s owns some of themost valuable intersections and street corners in America and around the globe.
My friend considers this as one of the most important lessons in his life. Today he owns car washes, but his business is the real estate under those car washes.
The previous chapter presented diagrams illustrating that most people work for everyone but themselves. They work first for the owners of the company, then for the government through taxes, and finally for the bank that owns their mortgage.
When I was a young boy, we did not have a McDonald’s nearby. Yet my rich dad was responsible for teaching Mike and me the same lesson that Ray Kroc talked about at the University of Texas. It is secret number three of the rich.
That secret is: Mind your own business. Financial struggle is often directly the result of people working all their lives for someone else. Many people will simply have nothing at the end of their working days to show for their efforts.
Our current educational system focuses on preparing today’s youth to get good jobs by developing scholastic skills. Their lives will revolve around their wages or, as described earlier, their income column. Many will study further to become engineers, scientists, cooks, police officers, artists, writers, and so on. These professional skills allow them to enter the workforce and work for money.
But there is a big difference between your profession and your business. Often, I ask people, “What is your business?” And they will say, “Oh, I’m a banker.” Then I ask them if they own the bank. And they usually respond, “No, I work there.” In that instance, they have confused their profession with their business. Their profession may be a banker, but they still need their own business.
A problem with school is that you often become what you study. So, if you study cooking, you become a chef. If you study the law, you become an attorney, and a study of auto mechanics makes you a mechanic. The mistake in becoming what you study is that too many people forget to mind their own business. They spend their lives minding someone else’s business and making that person rich.
To become financially secure, a person needs to mind their own business. Your business revolves around your asset column, not your income column. As stated earlier, the number one rule is to know the difference between an asset and a liability, and to buy assets. The rich focus on their asset columns, while everyone else focuses on their income statements.
That is why we hear so often: “I need a raise.” “If only I had a promotion.” “I am going back to school to get more training so I can get a better job.” “I am going to work overtime.” “Maybe I can get a second job.”
In some circles, these are sensible ideas. But you are still not minding your own business. These ideas all still focus on the income column and will only help a person become more financially secure if the additional money is used to purchase income-generating assets.
Financial struggle is often the result of people working all their lives for someone else. The primary reason the majority of the poor and middle class are fiscally conservative—which means, “I can’t afford to take risks”—is that they have no financial foundation.
They have to cling to their jobs and play it safe.
When downsizing became the “in” thing to do, millions of workers found out their largest so-called asset, their home, was eating them alive. Their “asset” was costing them money every month. Their car, another “asset,” was eating them alive. The golf clubs in the garage that cost $1,000 were not worth $1,000 anymore. Without job security, they had nothing to fall back on. What they thought were assets could not help them survive in a time of financial crisis.
I assume most of us have filled out a credit application to buy a house or a car. It’s always interesting to look at the “net-worth” section because of what accepted banking and accounting practices allow a person to count as assets.
One day when I wanted a loan, my financial position did not look too good. So I added my new golf clubs, my art collection, books, electronics, Armani suits, wristwatches, shoes, and other personal effects to boost the number in the asset column.
But I was turned down because I had too much investment real estate. The loan committee didn’t like that I made so much money from rent. They wanted to know why I did not have a normal job with a salary. They did not question the Armani suits, golf clubs, or art collection. Life is sometimes tough when you do not fit the standard profile.
I cringe every time I hear someone say to me that their net worth is a million dollars or $100,000 dollars or whatever. One of the main reasons net worth is not accurate is simply because, the moment you begin selling your assets, you are taxed for any gains.
So many people have put themselves in deep financial trouble when they run short of income. To raise cash, they sell their assets. But their personal assets can generally be sold for only a fraction of the value that is listed on their personal balance sheet. Or if there is a gain on the sale of the assets, they are taxed on the gain. So again, the government takes its share, thus reducing the amount available to help them out of debt. That is why I say someone’s net worth is often “worth less” than they think.
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