Over the years I have had countless friends approach me about learning how to invest. Honored that my friends and family showed that level of trust in me I quickly started recommending books, tutorials, websites, and videos I thought could help them. Unfortunately after my usual 15-20 minute breathless spiel 9 times out of 10 I end up with a glazy eyed yawning friend or family member.
It took me years and lots of heartache to understand this simple concept, it has absolutely NOTHING to do with investing. Here is the simple truth. Before you invest a single penny you need to “mind your own business.” By mind your own business, I mean you need to focus on your personal finances and get business intelligence training before attempting to invest in another business.
So now when I’m approached by friends or family I start by asking them “Are you debt free, minus your house (if they currently own)?” This question generally leads to them saying “no.” Which leads me to follow with the following questions…
Do you have student loans, how much?
Do you have a car loan, how much?
Do you have credit card debt, how much?
9 out of 10 people have at least two of these debts weighing them down.
“When you get in debt, you become a slave”
– Andrew Jackson
Most people have a hard time wrapping their heads around the fact that by taking on debt you are literally surrendering your future earnings. You no longer work for yourself, you start working for….
- Bank of America
- Wells Fargo
Today I am going to show you how to manage debt and your budget while regaining your full earning potential.
Back to when I mentioned “Minding your own Business,” you have to start viewing you (or your family’s finances) as a business. That means increasing earnings, eliminating expenses, adding assets, and eliminating liabilities. If that last statement went over your head don’t worry I am going to explain further. Please read on.
Earned income is income you receive from performing a service or job. Typically this income will be produced from a 9-5 job. This is the main income source for the majority of individuals and the hardest to increase.
Expenses are payments you need to make every month to maintain your current standard of living.
The definition of an asset is VERY SIMPLE, an asset is something that provides income without you having to be physically present. In other words, making money without having to “trade” time for it. If it does not do that then it is NOT AN ASSET.
A liability is a debt that requires a monthly payment. Simply a liability is something that takes money out of your pocket every month.
As I stated before you want to earn (Earned Income) more money than you spend (expenses) and you want to increase your assets and decrease liabilities.
Bottomline, you want to have a surplus of cash every month (free cash flow) in order to ELIMINATE liabilities/debt. Once this is done, use your monthly surplus to purchase assets.
Below are two spreadsheets for your use, enjoy!
If you have any questions please feel free to send me an email.
** This spreadsheet was derived from Robert Kiyosaki’s educational board game Rich Dad Cashflow 101. **