Monday, February 24, 2014

Financial Statement 101

Welcome to Financial Statement
based on the "Rich Dad Poor Dad" by Robert T. Kiyosaki

Everybody, I repeat, everybody have their own financial statement monthly.
From financial statement, we can see the cash flow of the individual.
And just based from the cash flow, the individual can either be POOR, or RICH

The Financial Statement

First of all, I will proceed with definition (in my own simple words)

Income : Money entering your wallet
Expense : Money leaving your wallet
Asset : Anything that you have (tangible or intangible) that makes you MORE money.
Liabilities: Anything that you have (tangible or intangible) that makes you LOSE money.

Capishe? Good.

How is the cash flow of a middle class/ordinary people?

Financial Statement of Middle Class

JOB gives you earned income which enters your wallet (income).
For most of the people, the income goes straight to Liabilities (car loans, mobile plan, credit cards).
Liabilities generates expenses (car loan payment, mobile plan payment, credit cards payment)
Only after all that, the remainder goes into savings (if there's any)

What really happened?
Middle class do not focus on building their assets. As the result, after years, they still do not have any assets.
So, let's say the world facing global economy crisis similar to 1997; people losing their jobs, their earned income is gone. BUT, the liabilities is still there, and expenses is still there too. Problems?

So, how do the RICH do it? 

Earned income from their jobs, the rich go straight to building their ASSETS (real estate, gold, businesses).
Since most of their money is spent on assets, they have to limit their LIABILITIES, which in turn reducing their EXPENSES.
So, after years, their assets GROW, and generating PASSIVE income, which contribute back to their income and assets. 
In economic crisis, even though the rich might lose their job, they still have their passive income working for them.

AND when their passive income monthly is more than their monthly expenses, they reached FINANCIAL FREEDOM. 

To wrap things up, I only have 1 question. Which financial statement do you want to follow?

Thanks for reading! Any questions, do contact me personally. I'll try my best to help.

If you like it, do share!

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