Jot Yob The Bank Rich dad nodded and said, "Now let's add cash flow to this picture and we begin to see how an asset, in this example a mortgage, really works:" "In this example, the mortgage takes money from your pocket and puts it in the bank's pocket. That is why the mort- gage is a liability to you and an asset to the bank. The point I am making is that it is the same legal document." "So the bank has created an asset that for you is a liability," Financial Literacy Made Simple 185 I added. "What an investor does is acquire an asset that someone else pays for. That is why investors own apartment houses. Every month, cash flows into the investors' income statements from the rent, just as their mortgage payments flow into the bank's income statement." Rich dad nodded and grinned. "You're beginning to get it. You definitely want to be on one side of the equation more than the other. But it is a two-way street," he said as he drew the following diagram: "Oh," I said. "My savings are my asset and the bank's liabil- ity. Again, it takes a minimum of two financial statements to see the complete picture." "Yes," said rich dad. 'And what else do you notice about these diagrams?" I stared at the diagrams for a while, looking at the exam- ples of the mortgage and the savings. "I don't know," I said slowly. "I just see what you have drawn there." Rich dad smiled and said, "This is why you need to practice reading financial statements. Just as you learn more the second and third time you read or listen to someone, you learn more 186 Rich Dad's Guide to Investing and more the more you practice being financially literate. More things come into your mind that your eyes often miss." "So what have I missed? What have I not seen?" I asked. "What is not visible from my diagrams is that the govern- ment gives you a tax incentive to acquire liabilities. That is why it gives you a tax break for buying a house." "I forgot about that," I said. "And it taxes you for your savings," said rich dad. "The government gives me a tax break for having a liability and taxes me for having an asset?" I asked. Rich dad nodded, saying, "Now think about what that does to a person's thinking and financial future. The average per- son gets excited about being in debt and not excited about ac- quiring assets." "People get a tax break for losing money?" I asked in bewil- derment. "Why do they do that?" Rich dad chuckled, 'As I said, the professional investor must think beyond the price of an investment going up or going down. A sophisticated investor reads the numbers to get the true story and begins to see things that the average in- vestor does not see. A sophisticated investor must see the im- pact of government regulations, tax codes, corporate law, business law, and accounting law. One reason it is hard to find accurate investment information is that to gain a full picture requires financial literacy, an accountant, and an attorney.