0. Quick Tips: Study Financial Statement
- Educate yourself now because no matter how much you have now, the risk is always there.
- Generate income efficiently / efficiency index = income ÷ work time & effort.
- Conserve / control your expenses / cure your overspending / stop wasting money.
- Avoid as much liabilities as possible / any possessions that generates more expenses.
- Focus on assets / passive incomes are best / put your money to work / invest well.
- Always aim for long term freedom and independence, it’s better to enjoy what you do.
- Overall, learn cash flow.
At the very general, there are three levels of people. For me, I study in them in this order: poor > middle class > rich.
- Learn why people are poor and find ways to get out of poverty.
- Learn how the poor can become middle class but why middle class cannot become rich.
- Learn the rules that distinguishes between the rich and the middle class plus the poor.
I recommend watching in the following order:
I recommend to watch this one for basic understanding and you may skip the rest for later.
The following are videos about Garret Gunderson and Robert Kiyosaki distiguishing between poor, middle class, and rich.
- The most popular way to earn is to work for someone or become an employee and on the other side is to do your own business.
- No matter whether you are an employee, employer, or freelance, what really matter is the work efficiency.
- The greater the income and the lower time & effort to generate that income the greater the efficiency.
- The basic of all is to stop wasting.
- Buy what you need and manage your desires in other words manage your expenses.
- The most occurring financial problem is not the lack of income but mismanaged and uncontrolled expense.
Investing is putting your money to work without you making effort to gain higher return with concrete planning.
3. The Poor
- Worst Case: work hard gain little, waste of energy and time. Gain is not only wealth. If you gain little wealth but gain experience, knowledge, skills, strength, etc, it may still be worth it.
- Worst Case: expense = income and even worse, expense > income. Example of overspending is working very hard and use them all for luxuries and pleasures such as going to restaurants, buying services, especially something that you don’t really need.
Not investing is a waste, but even worse is not considering and learning about investing. The poor definitely don’t invest.
4. The Middle Class
- Increase your income to reach middle class.
- Common limit: work harder to gain more. Answer these questions to see whether you are in the right track. Are you happy? Are you satisfied? Did you get to invest your income? Did you get to enjoy your income? Did you gain something worthy? Do you pay heavy taxes? What did you sacrifice? What did you gain? How long will you stay like this?
- Common: Expense < income. It’s common knowledge to not spend more than you have. You will reach lower middle class if you learn how to manage your expenses.
- To reach or maintain upper middle class, start noting your incomes and expenses. At least calculate how much you spent and how much you have every week. For me, I record every detail of income and expenses, such as noting how much I spent for lunch and dinner, my groceries, even as detailed as your banking admin fee and transfer fee, also your charities and gifts, even as little as how much you spent to buy a piece of candy.
Below are investment products that are popular among middle class:
- Government bond ($100 minimum): the safest because it is insured by the law but if you trust your currency and your government. If you love your country and want to contribute, then consider to invest in this.
- Time deposit ($1000 minimum): very safe if you trust in your currency and banks or institutions but expensive.
- Mutual fund ($1 — $10 minimum): you can start small, the risk depends on the type of mutual fund which ranges from safe to dangerous, but again if you trust in your currency.
- Stock market: risky but high return. Without knowledge, investing in the stock market is the same as gambling.
- Staking: in cryptocurrency, you stake to run the network, the more you stake the more you get, but only if you trust in the cryptocurrency.
- Angel investing: invest directly in a company, business, etc, and earn equity meaning that you always receive percentage of their profits. Hard to find but one of the best.
Common trap: most of the time, investing on the products above does not make you rich. It only helps you to save your wealth and earn pocket money. Sometimes it is bad, for example a certificate of deposit (CFD) gave you an interest of 1% a year but inflation rate is 5% yearly. It means you are still losing money and your money is locked for a long time. The most extreme case is during financial crisis. Robert Kiyosaki always says, why would you save money (referring to fiat currency) when the government is printing more than you can save? The problem is the lack of education.
Most middle class mistook liabilities as assets. For example:
- Your car is a liability because you need to feed fuels and regularly perform maintenance in other words, generate expenses.
- The same goes for your house that it is a liability because you need to pay for electricity, water, and other maintenance.
- Even people and other living thing can become liabilities.
- Pets are liabilities because you need to provide food, water, and care.
- Having children is initially a liability because you need to fully take care of them and currently education is the highest expense.
- Parents in old age, commonly they become liability because you need to take care of them (unless you are evil).
- Friends that uses you are liabilities.
This is how far I have climbed, beyond this is the realm of the rich.
5. The Rich
As I said, I haven’t reach this stage yet. What I wrote currently is what I heard and I’m fighting to reach this stage. Once I reach this stage, I will add my experiences.
- Best Case: work smart and you are free to choose how hard you work. Work little and gain lots but you may work harder to gain even more.
- Asset is the ultimate income and the ultimate asset is passive income where you don’t have to work anymore to gain income. The rich focuses on the asset column. Warren Buffet said that if you don’t know how to make money while sleeping, you will forever have to work.
- The rich are able to distinguish between assets and liabilities.
- Asset generates income while liabilities generates expenses.
- Continuing from previous middle class section, a car can become an asset if it generates higher income than the expenses such as being a taxi driver, renting your car, and necessary to use your car for business. The same goes for houses, if you rent your house, then it is an asset.
- Even people and other living thing can become assets.
- Pets can be an asset if their long term value is more such as helps you to relieve your stress, motivates you, or they themselves directly generate income such being a guard dog, K9, win pet competitions, entertainment industry, etc.
- Children will become your greatest asset when they become successful and takes care of you in the future.
- Parents are initially asset because they are the one that takes care of you (unless they are evil).
- Friends that benefits you are assets.
The Masters knows what to invest, when to invest, and when to exit. To become a Master requires lots of education and experience. The rich becomes rich by investing all or beyond the amount of wealth that they have and gain much larger returns.
Business is a generally known term to create an asset. Starting a business is very difficult but once it’s matured, money will flow to you without doing anything. For example, you have a company and all you need to do is watch over your employees working for the company. Example popular business is building real estates and renting them, building factory to mass produce products, building a restaurant and sell your cuisines, buying cars and rent them, etc. For a business to grow big, you must invest all your wealth and most of the time wealth that is beyond what you have. Another important topic is about tax.
E. Debt / Loan
What is wealth that is beyond your amount? Debt / Loan. The poor drown in debt, the middle class free themselves from debt, while the rich exploits debt. If you can’t handle what the rich does that is discipline in focusing your assets first (like overspending in luxuries and pleasures), then get out of debt and stay middle class or debt will eat you alive and you will become poor.
F. Cash Flow
The rich masters the six key words of financial statement: (1) income, (2) expense, (3) asset, (4) liabilitiy, (5) cash, (6) flow. Finally, after mastering every other words, the rich masters cash flow.
6. My Controversial View of Wealth
- Purchasing power is the ability to get your desires.
- Your real necessities are food, water, health, etc.
- Money is a language to express value and currency is the tool.
- That tool is only valuable if it can purchase.
- That currency in your bank is worthless until it is purchased.
- Most currencies are only papers, when the currency collapses, they become as useless as papers. Why would you work for currency if the government prints currency faster than all of you can earn?
- The true wealth is not the amount of Dollar, Euro, Pound, Yen, Bitcoin, Gold. They are only language to express your values. The true wealth is what you purchased using them.
- Would you prefer to be stuck in world with unlimited gold without food and water or to be stuck in world with unlimited food and water without gold?