If you’re anything like I was a few years ago, financial literacy is just a distant thought that sits way behind finding a decent work environment and navigating what life is like after college.
Me a few years back: I had a 401k, understood its importance (so I thought), saved no less than 20% of each paycheck, and thought that was good enough for now.
Oh, and that thing called the stock market? No way, thats something I’d avoid until WAY later.
I know the exact moment that my mind shifted about money. I was watching an IIN lecture for my health coach certification, (you can read about my experience at IIN here) and a woman was on stage speaking about popular deep routed mindsets surrounding money (I wish I remembered her name, if anyone knows it, please tell me). She kept repeating the phrase:
“Money gives you power”
She spoke about people inspired to make the world around them better, and that no matter how small or large their current reach is, money is what will help their voice be heard. She spoke of how money didn’t have to mean greed. Money didn’t have to mean stress. There is plenty of it to go around, and you don’t have to give up the things that are truly valuable in your life for you to receive money. She said that if you develop deep rooted values and commit to sticking to them, attaining a surplus of money will not sway your character.
She hit a chord with me. I realized that I saw money in a negative light. In my world, people stressed over it, it felt like there wasn’t enough of it to go around. I felt foolish trying to attain anything superficial. I had a tainted belief that greed caused man to do horrible things, and those that had a large surplus of money must have done questionable things to get there.
After her lecture, I decided that I needed to better understand personal finances. The thought of having a grasp on how to invest and manage my cash flow empowered me. If I want to live financially free, then I needed to know more than saving 20% of each paycheck, putting money into a 401k, and eventually investing in a home. I needed to learn how to make my money work for me. I mean, what the hell am I doing working every day if I don’t know what to do with the money I get?
So… I set out on my journey. I started listening to lectures, watching documentaries, and reading financial lit blogs and articles from the greatest minds in finance today.
A friend from work gave me a gift for Christmas (must have been sharing my learnings about finances a bit too much, whoops) and it was Rich Dad Poor Dad. I started reading right away, and was blown away by the simplistic manner that this book explained managing money and investing. It’s where I learned my first lesson in financial literacy, which is what I’m sharing with you today.
Rule #1 in Understanding Cash Flow: Know the Difference Between an Asset and a Liability (the only rule)
“Rich people acquire assets. The poor and middle class acquire liabilities that they think are assets” – Rich Dad Poor Dad
This is such a simplistic, but life changing rule when taking charge of your finances. Do not overlook it because of its simplicity.
- Assets cause money to flow into your pocket
- Liabilities cause money to flow out of your pocket
Examples of Assets: stocks, bonds, notes, real estate, intellectual property
Examples of Liabilities: mortgage, consumer loans, credit cards loans
And wait, a house isn’t always an asset? What?! Why?
Regular expenses of owning a home for a include: mortgage, real property taxes, insurance, maintenance, utilities. There are clearly many further variables in this, but all explanations fall back to the simple understanding of the difference between a liability and an asset. A house is not an asset when it’s causing money to flow out of your pocket.
Rich Dad Poor Dad puts it simply, if you want to be financially free, spend your life acquiring assets and reducing liabilities.
If you are like me, and you want to take charge and improve your financial health, then stay tuned for weekly personal finance updates.
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Interested in Rich Dad Poor Dad? You can purchase it through the below link:
Thanks for reading! Feel free to reach out with any comments.