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Rich vs Poor People Mindset

Rich vs Poor People Mindset

Rich VS Poor –  In this article (Rich VS Poor) we talk about their financial intelligence and mindset. One person thought his house was an asset and the other thought it was a liability in many previous articles(Liberty Financial In Today’s World). I was explaining  Rich VS Poor cash flow with the help of diagram I also show him the ancillary expenses that went along with owning home. A bigger home means bigger expenses, and the cash flow kept going out through the expenses column.

 

Rich VS Poor - Middle class Income Statement

Today people still doubt on the idea of a house is an asset. I know that for many people, it is their dream as well as their largest investment. Endowing your Own home is better than nothing. I simply offer an alternative way of looking at this popular dogma(Rich VS Poor).

If a man and his wife buy a bigger, flashier house, they realize it wouldn’t be an asset. It would be a liability it all depends on there financial intelligence since it would take money out of your pocket.

So, here is the argument I put forth. I Really don’t expect most people to argue with it because your home is an emotional thing and when it comes to money, high emotions tend to lower financial intelligent I know from personal experience that money has a way of making money at every decided emotionally.

  •  When it comes to houses, most people work all their lives paying for a home they never own. In other words, most people buy a new house every few years, each time incurring a new 30-year loan to Pay off the previous One.
  • Even though people receive a tax deduction to interest on mortgage payments, they pay for all their other expenses with after-tax dollars, even after they pay off this mortgage.
  • Houses do not always go up in value. I saw the people Who owe a million-dollar . for a home that today would sell for far less.
  • The greatest losses of all are those from a missed opportunity. If all your money is tied up in your house, you may be forced to work harder because your money continues blowing out of the expense calming instead of adding to the asset Column the classic middle-class cash flow pattern.

Making a decision to own a house that is too expensive in lieu of starting an investment portfolio impacts an individual in at least the following three ways:

  •  Less of Times, during which others could have grown in value.

 

  •  Loss of additional Capital, which has been invested instead of paying high home maintenance expenses.

 

  • Less of education. Too often a people count their house and savings and retirement plans as all they have a thing asset column. Because they have no money to invest they simply don’t invest. This costs them an investment. experience. Most never become that the investment world calls on ”a sophisticated investor” and the best investments are usually, first sold to sophisticated investors, who then strong around and sell them to the people playing it Safe.

I am not saying don’t buy a house, what I am saying is that you should understand the difference between an asset and a liability or Rich VS Poor Mindset. If people want a bigger house, they first buy assets that will generate the cash flow to pay for the house.

In the illustration below, shows Rich VS POOR  Person income statement. It is worth a thousand words. Poor shows that his income and expenses are equal while his liabilities are larger than his asset. In rich person personal financial statement reflects the results of a life dedicated to inviting and minimizing liabilities.

Single-Step Income Statement

RICH PERSON:

Rich VS Poor - Rich person income

 

POOR PERSON

 

Rich VS Poor - Poor Person Income Statement

 Why Rich get richer?

Budgeted Income Statement

A Review of a rich person financial statement shows why rich get richer. The asset column generates more than enough income to cover expenses with balance reinvested into the asset column. The asset column continues to grow and, therefore the income it produces grows with it. The result is that the rich get richer! ( high financial intelligence)

 

 

Rich VS Poor - Rich Assets column

 

 

Why middle-class People struggle?

Traditional Income Statement:

The middle class find itself in a constant state of financial struggle. Their primary income is through their salary as their wage increase, so do their taxes. Their expenses tend to increase in proportion to their salary increase hence, the phrase ”The Rate Race” they treat their home as their primary asset, instead of investing in income-producing assets.

Rich VS Poor - Middle Class Assets Cloumn

This pattern of treating your home as an investment and the philosophy that a pay raise means you can buy a large home or spend more is the foundation of today’s debt-ridden society. Increased spending throws families into greater debt and into more financial uncertainty; even though they may be advancing in their jobs and receiving pay raise. This is high risk living Caused by weak financial education.

The massive jobs in recent times prove how Shaky the middle class really is financial. Company pension plans are being replaced by 401k plans. Social security is obviously in trouble and Can’t, be relied upon as a source for retirement. Panic has set in the middle class.

Today mutual funds are popular because they Supposedly represent Safety. Average mutual funds buyers are too busy they working to pay taxes and mortgages, Save for their children’s college and pay off the credit card.

They do not have time to study investing, so they rely on the expertise of the manager of a mutual fund. Also, because the mutual fund included many different, types of investments, they feel their money is safer because it ” diversified”, This educated middle-class Subscriber to the dogma put out by mutual funds brokers and financial planning ”play it safe”, ”Avoid risk”.

The real tragedy is that the lack of early Financial Intelligence is what creates the risk faced by the average middle-class people. The reason they have to play if safe is that their financial positions are tenuous at best, Their balance sheet is not balanced, Instead, they are loaded with liabilities and have no real assets that generate income, Typically, the only source of income is their paycheck.

Their livelihood. becomes entirely dependent on their employer, so when genuine ” deals of time “ come along these people can’t take advantage of them because they are working so hard.

As I said at the start of this section, the most important rule is to know the difference between an asset and a liability. Once you understand the difference, Concentrate your efforts on buying, income-generating assets.

That’s the best way to get started on a path to becoming rich. keep doing that, and your asset column will grow. keep liability’s and expenses down so more money is available to Continue pouring into the asset columns will grower.

Soon the asset base will be so dupped that you can afford to look at more speculative investments. investments that may heavy returns of 100 per cent to infinity $5000 investments that are soon turned into $1million or more, investments that the middle-class calls, ” too risky”. The investment is not risky for those to know about financial liberty.

If you do what the masses do, you get the following picture:

 

Balansheet VS Income Statement

 

 

Rich VS Poor - Middle class Expenses

As an empty who is also a homeowner your working efforts are generally as follows:

  • You work for the company

Employees make their business owner or the shareholders which not themselves your efforts and success will have to provide for the owner’s success and retirement.

  •  You Work For The Government.

The government takes its share from your paycheck before you even see it by working harder you simply increase the amount of tax by the government most people work from January to make just for the government.

  •  You Work For The Bank

After taxes, your next largest expense is usually your mortgage and credit card debt

The problem with Simply working harder is that each of these three levels takes a greater share of your increased efforts. you need to learn how to have your increased efforts benefit you and your family directly.

Once you have decided to concentrate on minding your own business – focusing your efforts on acquiring assets instead of a bigger paycheck – how do you set your goal? Most people must keep their job and rely on Their way to fund their acquisition of assets.

As their assets grow, how do they measure the extent of their success? when does someone know that they are rich, that they have wealth? I have my own definition of assets and liabilities.

I also have my own definition of wealth. Actually. I borrowed I’d from a man named R. Buck Ministry Fuller. Some call him a “quack, and others call her to a genius” years ago he got architects Called a geodesic dome. But in the application, fully also Save Something about wealth. It was pretty confusing at first, but after reading, it began to make some sense:

”Wealth is a person’s ability to survive so many numbers of working days forward-or, of he stop working today, how long could he survive?

unlike not worth – which is the difference between your assets and liabilities, and is often filled ” with a person’s expensive jump and Opinions of what things are worth – this deficit definitions creates the possibility for developing a truly accurate measurement although net worth often included non-cash- producing assets, like stuff, you bough that now sits in your garage wealth measures how much money, your money is making, therefore, your financial survivability.

Wealth if the measure, of the Cash flow from the asset column, compared with the expense column. let’s use an example. Let’s say I have Cash flow from my asset Column of $1000 a month, And I have monthly expenses of $ 2000.

what is any wealth Let’s go back to Blukminister Fulley’s definition using his definition, how many days forward can I survive. Assuming a 30- day month, I have enough cash flow for half a month. When I achieve $2000 a month cash flow from my assets. then I will be wealthy.

So while I’m not yet rich, I am wealthy. I now have income generate from my assets each month that fully cover my monthly expenses. If I want to include my expenses. I first must include my cash flow to maintain this level of wealth.

Also, note that it is at this point that I’m no longer dependent on my wages, I have focused on, and been successful in, building an assets column that has made me financially independent.  I quit my job today, I would be able to cover my monthly expenses with the cash flow from my assets.

My next goal would be to have the excess Cash flow from assets. Reinvested into the asset Column. The more money that good into my asset column, the more that grows. And as long as keep my expenses less than the cash flow from these assets, I grow richer with more and more income from sources other than my physical labour. As this reinvested process continues, I am well on my way to becoming rich, just remember this simple observation:

• The rich buy assets

• The poor only have expenses

• The middle class buy liability they think are assets.

 

CONCLUSION

We always Thought why rich people are rich and how they make a lot of money but the fact is they are financially literate and develop their financial intelligence,

any person who is financially literate or has high financial intelligence can become a billionaire.

 

What is the most important thing which is needed to be financially literate?

  1. THINKING
  2. KNOWLEDGE
  3. INFORMATION
  4. GOOD MENTOR

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