Financial literacy is one of those things that many people know exists, but nobody really knows what it’s about and how it helps. However, being financially illiterate is one of the worst choices you can make. It can be a life-changing thing. In this article, I will explain what it means, why is it important for you and what will happen if you choose to ignore it.
Do you know this man? If yes, you’re on the right way. If not, something needs to change. This amazing person in the picture is the Robert Kiyosaki, a man who has helped millions and millions of people to escape the “Rat race”, which is how he calls the never-ending cycle of living paycheck to paycheck and doing something you possibly hate just because it pays well. He is one of those people who decided to teach others and share the importance of his message, even though he never really liked school.
“People with low financial literacy standards are often unable to take their ideas and create assets out of them.” (R. Kyiosaki)
Still not sure what financial literacy means? It’s something they should teach every kid in school. It’s something so important that if everyone knew it, the world’s society would change drastically… For the better. In short, it is an area of knowledge that allows you to effectively manage your finances and helps you increase wealth without exploiting most of your lifetime. It is the ultimate way to escape the “Rat race”, to become financially free.
Carefully look at the graph above. In order to escape the “Rat race,” you need to encode this into your brain, see it in front of your eyes when you wake up and change your thinking so that you always come back to this graph.
Let me explain Robert’s graph more into detail. As you can see on the left, the income in form of Jack’s salary goes directly to the liabilities, which then leave Jack’s account in form of expenses. This is an income statement of somebody who’s rat racing for his life. You do not want to be in Jack’s shoes. You can also see that the only source of income is Jack’s salary. He has absolutely no assets. In short, he’s spending all his money.
In comparison, Tracy has already invested in her assets column. She has much more assets than liabilities and as you can see, her assets are making more money. You can also see that she has multiple kinds of assets ranging from stocks to real estate. Her income from her assets can easily cover her expenses. This means that she is financially free. She escaped the “Rat race”. Can you?
Work on reducing your liabilities column and on growing your assets column.
In order to become financially free, just like Tracy, you need to understand the difference between assets and liabilities. Assets are the things that provide you with money inflow. They gain you money. A few examples of assets are stocks, real estate, dividends, intellectual property or anything that provides you with passive income. By passive income, I mean the kind of income you don’t need to participate in obtaining. You create or buy an asset and it makes you money. Liabilities, on the other hand, are the things that provide you with money outflow. They take your money away. An example could be a house you bought on a mortgage, a car or a Netflix subscription. These take your money away from you and it is necessary to limit them or to ditch them completely. Do you have any liabilities?
The bottom line is, try to increase your assets column as much as possible. Also, try to minimize your liabilities column. This will shift your focus on money making and away from money wasting. Use your money to make more money by investing it in the right direction. Do you have any assets? What asset classes do you have? Leave us a comment! We love to hear different perspectives!!
Now to the last point, what happens if you choose to ignore financial literacy. Well, you will stay or become poor. You will lose your money and you will rat race until the end of times. And yes, it is a choice everyone has to make. Take Robert for example, he learned from his rich dad. He wasn’t rich at the start, he earned his wealth by choosing the right direction. Please, be like Robert. Have you read any of his books? If not, I’d like to suggest you one to start with: Rich Dad Poor Dad. I completely loved it and I’m sure that you will too.
- Work on reducing your liabilities column and on growing your assets column. – This is immensely important for your financial growth. If you choose to ignore this, you will have a very hard time looking for other ways.
- Assets – provide you with money inflow, stocks, dividends, real estate, other sources of passive income
- Liabilities – take your money away, these include a mortgage, a car, a Netflix subscription
- Check out Robert’s books /affiliate/
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