A Simple Illustration About What Makes Us Poor, Middle-Class, or Rich


For a couple of years now, I've been drooling over books about financial management and wealth maximization, been attending seminars, watching and getting all the feed from successful businessmen, financial experts and investors. I guess I've arrived to a realization that I don't want to strain myself so much working for other people's dream just so I can somehow reach mine. Being a freelancer also had me thinking of ways to really make sure I spent my money wisely. I have also been leisurely dreaming about early retirement, and just travel the world, live a kick-ass life, write some more blog posts or book, and also be a rock-star mom and wife.

I guess, for people who weren't born with the luxury of having it all, like those inherently rich even when they're still in their mother's placenta; it seems inevitable that we come to a point when we just had enough of crazy days or weeks pleasing our bosses or clients. And in some case (which is mostly true in my life), to have the liberty of not having to think of how much it'll cost (hot car anyone?) or of how long will it take (an edgy glass house maybe) to get it.

Oh well, but then truth is - to become rich - means a change of lifestyle. It requires discipline - the ability to say no, determination, to be so focus and becoming goal-oriented. Here's a simple illustration to begin with, be enlightened my dear reader.

Robert Kiyosaki, a famous self-help author, is a successful investor and businessman, he is also a motivational speaker and financial commentator. In his best-selling book "Rich Dad, Poor Dad" he wrote that when we have financial intelligence it gives us the opportunity to become rich and allow us to escape the rat race of financial struggle.

He described financial intelligence using the below data:
1 Year100 People
10,000$20,000 to 1M or more4%

The scenario is, if we give $10,000 to 100 people; 80% of them will have $0 left at the end of a year, 16% will have $10,050 because they put it in a bank, and only 4% will have $20,000 to 1 million or more by putting it to valuable investments. He created a principle or system called the "Cashflow Game", it's goal is to learn how to make money with money. He mentioned that it is important that we become familiar with the financial statement composed of the Income section, Expense section, Asset and Liability sections. 

Robert Kiyosaki defines asset and liability in an easy and practical manner:

Asset = something that puts money in my pocket
Liability = something that takes money out of my pocket

He puts the definition into a much simpler example, that is, if he stopped working:
ASSETS will feed him, and LIABILITIES will eat him.

With this principle in mind, he presented the Cash flows of the poor, middle class and rich people.
Cash flow # 1: The ‘Job’ generates the income, when money comes in it goes down to expenses then out of the statement. When the money comes in, we have a choice to make where to put it. If we choose to spend our money to buy a new shirt, or treat ourselves an expensive lunch and buy a frappuccino, and other unnecessary expenses - then we are choosing to be poor.
Cash flow # 2: The job generates the income, goes down to expenses, and then spent on buying a new car or a bigger house, paying credit card bills, etc. This type of cash flow has a cycle that is from job to income to expense to liability then go back and out in the expense section of the statement. If we choose to do this, then it is said that we are choosing to be middle class.
Cash flow # 3: The job generates the income, and then it goes down directly to assets. This means that rich people focus more on assets. Eventually the assets now generate the income. Regardless if you lose your job, the assets still provide a continuous source of income. If we choose to invest on assets, then we choose to be rich - and by repetition -we become even richer. 

Mr Kiyosaki's point is simple yet very effective and practical; we have the choice to either stay poor, middle class or rich. The choice is ours. We have to be disciplined and intentional in choosing where to put our money when it comes in. A proven cash flow that helps you achieve your financial goals is the one that push you to invest your money on income generating assets. 

You may also want to read:
Saving Is An Expense That Buys Your Future
6 Reasons Why Real Estates Is A Very Good Incoming-Generating Investment

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