In this article, I will show you three charts consist of cash flow and asset vs. liability. Learn to hack the charts and you will be on your way to the road to riches. These charts are discussed and elaborated insightfully in the book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money–That the Poor and Middle Class Do Not!
First, let’s look at the chart of the mediocre.
Hacking the Charts of the Mediocre
Financial situation:
- always spend less than they earn
- save a portion from their pay check every month
- conservative passive investors who mostly keep their money in the bank
- buy a house, buy a car, go to work and wait for retirement
- net worth grow slowly.
- they are very afraid of debt and try hard to pay it off as soon as possible
Being mediocre is definitely better than being poor.
Hacking the Charts of the Poor
Financial Situation:
- at first, there is some tiny saving left at the end of the month
- but they use the little surplus to acquire more debt - buying stuff they can’t afford
- liability is greater than the amount of asset, resulted in negative net worth
- excessive amount of liabilities put more load to the overall expenses because they need to pay interest charges - Negative cash flow
- when they finally got a career promotion with higher income, they use the tiny surplus to acquire more liability — switch to a bigger house, a bigger car etc
- frugal is a word that doesn’t exist in their dictionary
Hacking the Charts of the Rich
Financial Situation:
- they are definitely the Millionaire Next Door
- normally they work hard to increase their income
- they earn better than the mediocre but still spend like the mediocre.
- they save a lot from every paycheck which is normally invested, in the area they are familiar of, probably in their own businesses.
- some ultra rich know how to use the leverage of good debt. They might get into deeper debt, but at the same time the debt is being used to acquire justifiably greater assets. Assets contributes more earning and improve their cash flow chart.
- financially, they are independent.
- They are the prodigious Accumulator of Wealth
How do your cash flow and net worth charts look like?
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Although I am on the fence about Robert Kiyosaki and Rich Dad Poor Dad, I have to admit there are some part of his book that was insightful. I think you did a great job here at simplifying and demonstrating the cash flow concept.
I think the hardest part is save to invest, to use money to earn money to get out of rat race. With a very materialistic perception, it’s very hard to stay in small house, small car, prudent spending while people judging you whether you are successful enough to do business with them.
Personally, I found this very challenging not to spend more while earn more, especially I”m in the business world that talk about personal image. I think if you can beat that, you are on your way to your financial freedom:)
Good article, I linked to you from my blog at http://www.mymoneythinks.com/money-management/carnival-of-smart-money-3/
poor man rich thinking…
income = investment
expenses = investment profit
do something to make profit using your income..and your profit will become your expenses..dont spend your income..