Lesson Two: Learning Financial Literacy?
Developing financial literacy is key to having any success with money. Financial literacy is simply the study of managing one’s finances. Robert Kiyosaki breaks down the basics of financial literacy in order to show the differences in cash flow for different income levels.
There are a few key terms one would need to understand in order to see differences. Income is simply the amount of money you earn (wages, salaries, etc.). Expenses are things like (taxes, food, rent, clothes, fun, and transportation). An asset is something that puts money into your pocket (stocks, bonds, investments). A liability is anything that takes money out of your pocket (home mortgages, loans, credit card debts.)
The best way to understand the difference between the haves and have nots are through situations shown below:
This is the situation for those in lower income brackets:
Job (providing income) is less than expenses (taxes, food, rent, clothes)
No Assets, No Liabilities
Compare that situation to the wealthy:
Assets (stocks, bonds, notes, intellectual property) are greater than income (from job)
To put it simply, the rich are able to live well off of the returns from their investments such as stocks and bonds covering any expenses. While a poor person is using the majority of his wages to pay for his prospective living expenses. In order to become wealthy, one must focus on increasing his assets (investments) rather than focusing on increasing his income (pay raises).
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