We adults are often too smart. We have learned the ways of the world, so the simplest ideas are often the most difficult to accept. It is difficult to learn and accept an idea that interferes with what we already know and believe to be the truth.
In this article, I will challenge you to change your thinking. Say you are a newly married couple, perhaps with children. You have been living in an apartment, and you have saved a substantial sum of money. Many would look into buying a home to move into. In fact, it is the American dream. What if I told you that buying that home is quite possibly one of the worst things you can do with your money? Most would argue, but a few would understand. Why is it a bad idea?
You're not really buying the house - you're buying a mortgage. You own the house technically, but if you stop paying, the bank has the right to take your house away. So, what do they own? They own your money, say $1,000, that you pay every month. They own a paper, the mortgage, that guarantees them $1,000 income every month. It's protected, too. If the $1,000 stops coming in one day, the bank will own a house worth hundreds of thousands of dollars.
Think about what you did with your money. You bought the bank a ton of money, didn't you? Why would you buy something that pays somebody else for thirty years? Shouldn't you buy something that pays you, rather than somebody else?
Many people will claim that owning a home is better than renting. Yes, it is better than renting. But it is not the best use of your money by any means. Never, ever buy a product that produces income for somebody else. That just doesn't make any sense. Instead, you should focus your entire financial life on buying things that produce income for yourself.
A kindergartener would understand this. Buy things that pay you. Surely it is smarter than never doing that, and only buying things that pay other people. It definitely is. But, few people do it. If you think it's risky, then think about this - would you feel safer having a $200,000 income from your job (which you could always lose, or become unable to work) or having $200,000 coming in from twelve different sources regardless if you work a job or not?
Moral of the story: Buy things that pay you. Don't buy things that pay other people.
A Kindergartener's Approach to Finance