Why context, not content, will prepare your child for the future
I want to talk about content vs. context, and why the difference is important for how you prepare your child for the future. Pictured below is a water glass, partially filled with water. For purposes of this lesson, the water in the glass represents content. The water glass itself represents context.
Education Is About Content
Traditional education focuses on content: reading, writing, and arithmetic. Traditional education does not focus on context: the student.
My problems in school began when I did not like the content (the water) my teachers were pouring into my head. Every time I objected, saying, “Why am I studying this?” their answers were uniformly the same, “If you don’t get a good education you won’t get a good job.”
I’ve grown to understand that my teachers’ responses demonstrated a lack of concern for my context. They assumed I wanted to be an employee.
What Is Context?
Context holds the content. Contexts can be visible, invisible, human, or non-human.
A person’s context includes:
A poor person’s context is seen in their words:
“I’ll never be rich.”
“The rich will not go to heaven.”
“I’d rather be happy.”
“The government should take care of people.”
The reason many people are poor is because they have a poor context. In most cases, more money will not make a poor person rich. In many cases, giving a poor person money keeps them poor longer...often forever.
This is also the reason why so many lottery winners are soon broke. The same often holds true for sports stars.
A Matter of Priorities
Notice the shift in priorities, values, and words that communicate a middle-class person’s context:
“I must get a good education.”
“I need a high-paying job.”
“I want a nice house in a nice neighborhood.”
“Job security is very important.”
“How much vacation time do I have?”
People with a middle-class context typically don’t get rich. Many go deeper in debt to “keep up with the Joneses.” Instead of investing, people with a middle-class context just consume more. They buy a bigger house, take nice vacations, drive expensive cars, and spend money on higher education.
Since most people buy on credit, they often find themselves getting deeper in debt—bad debt, consumer debt—rather than getting richer.
Context is Knowledge
When people with a middle-class context hear, “There is good debt and bad debt,” their context closes. All they know is bad debt, debt that makes them poorer. Most cannot grasp the idea of good debt, the kind of debt that can make them richer.
For many of these people, it is best that they simply follow the advice of those who counsel, “Cut up your credit cards and get completely out of debt.” That is the content (the water) that their context can handle.
When it comes to investing, most middle-class people have the context, the belief system that supports the position that “investing is risky.” That is because most invest in traditional education for college degrees, but fail to invest in financial education.
The Context of the Rich
Examples of statements that reflect a rich person’s context might include:
“I must be rich.”
“I own my own business, and my work is my life.”
“Freedom is more important than security.”
“I take on challenges so I can learn more.”
“I want to find out how far I can go in life.”
Most of these people are true capitalists. They know how to us OPT, Other People’s Talents, and OPM, Other People’s Money.
When a middle-class person puts their savings or retirement fund into a bank, the banker lends that money to the capitalist.
This is why my rich dad said, “Context is more important than content.”
A Better Education: Context Before Content
One reason I had a tough time in school was because I had no plans to be an employee. I wanted to be an employer, an entrepreneur. Every time a teacher attempted to motivate me with, “If you don’t get good grades, you won’t get a good job,” I checked out...my mind just shut off. By the time I was twelve, I had been working with rich dad for three years. I no longer had the context of an employee.
The statement, “You won’t get a good job,” worked on my classmates who wanted to be employees. It did not work on me.
The lesson is this: “Context determines content.” If my teachers had said, “I’m going to teach you how to raise capital so you can start your own business,” I would have been all-ears. I would have been sitting at the front of the class. I would have said, “Pour that content in!”
Today, ask yourself, what is my context? Am I happy with my context? Or do I want it to change? If you want to be rich, you must have a rich person’s context. And that starts with learning what the rich know about money— their financial education.
In order for an economy to grow, one or more of the following things must happen: the workforce must expand, wages must increase or credit must grow. That is because, ultimately, the size of every economy is determined by the size of the population and by how much the people spend. The problem with the US economy is that none of these things is increasing enough to generate a satisfactory rate of growth. Worse still, there is little reason to believe this is going to change within the foreseeable future.
The growth rate of the US workforce has slowed sharply in recent decades and is now barely growing at all.
Meanwhile, globalization has put extreme downward pressure on US wages. Real median income was the same in 2010 as it was in 1989. With the size of the workforce slowing and median income not growing at all, the rate of growth in real disposable income has naturally been slowing as well.
During the first three months of this year, real disposable income was up only 0.7% compared with the same period last year. Real personal consumption expenditure grew slightly faster, by 2.1%; but that was only possible because people saved less. The personal savings rate averaged 2.3% during the first quarter of this year, more or less an all time low.
From 1980 to 2007, total credit as a percentage of GDP expanded sharply; from 170% to 360%. The rapid expansion of credit contributed enormously to the economic growth during recent decades. In fact, credit growth was the driver of economic growth. Even still, the credit boom was not enough to sustain the rate of economic growth experienced during the 1950s and 1960s.
Then, in 2008, even credit ceased to expand. That occurred because the private sector simply could not bear any more debt and began to default on the debts already incurred. Since 2008, the size of the workforce has barely budged and median income is actually falling. The Fed is desperately trying to make credit expand again by printing money and pushing up the value of property and stocks. Higher asset values create more collateral, which should allow more borrowing.
Asset prices have indeed begun to rise. Household Net Worth is now $70.3 trillion, $3.5 trillion above its previous peak set in 2007. Credit, however, is still not expanding enough to make the economy pick up. During the first quarter, total credit expanded by 3.6% compared with one year earlier. Adjusted for inflation, that’s about 1.6% growth. Between 1952 and 2007, every time total credit (adjusted for inflation) grew by less than 2%, there was a recession.
Looking ahead, there is little to suggest that the size of the workforce or median income will soon begin to expand again. Nor should we expect a rapid pickup in credit growth. Household sector debt is still contracting and now the rate of growth of government debt is set to slow sharply due to sequestration and the recent tax increases.
With almost all the recent economic data coming in weak, the Fed must feel that it has little choice but to continue printing money in order to drive property and stock prices higher, in the hope of causing credit growth to revive. Recently, the market has begun to speculate about when the Fed will begin to “taper off” the amount of money it prints each month. That speculation looks premature. Quantitative Easing is the only thing keeping the economy afloat. If the Fed does significantly reduce QE any time soon, a new recession would almost inevitably result. In fact, we may soon once again be in recession even if QE continues.
The power of the Triple-A Triangle to achieve your dreams
We all have hopes and dreams. They start when we’re young: “I want to be a veterinarian when I grow up!” And they continue through our adolescence and into adulthood. Our hopes and dreams often define us. But there is a huge difference between having dreams and actually achieving them. The question is, how do you get what you want in life?
The truth is that you cannot have what you want unless you do something. It’s impossible. Think of some “wants” in your life. Maybe it’s success, wealth, or health. In order to accomplish any one of those goals requires that you do something. Success requires accomplishments. Wealth requires delivering a product or service that someone is willing to buy. Health requires eating well and exercising.
Whatever you have is a result of what you do.
The definition of do is “to perform, to execute, to accomplish, to exert, to be the cause of.” There are three types of doing that are necessary to reach a goal. I call this the Triple-A Triangle. Some women start, but do not reach, their financial goals because they are only focused on two of the three dos. Those women who reach their financial goals are fully committed to working through each part of the Triple-A Triangle. They aspire, acquire, and apply.
The Do of ASPIRE
This is the dream, the vision, the want. It is more than, “I want a million dollars.” It is what you will ultimately have when you reach your financial goal. The dream may be, “I will have the freedom to sail around the world.” “I will have the time to spend with my granddaughter.” “I will open my gourmet food shop.” “I will contribute my time to Habitat for Humanity.” Although the goal is financial, the dream is much more than money.
The do of ASPIRE is that you must:
Choose your dream or your want.
Have a clear vision of what the dream looks like in your mind.
Refer to this visual regularly, ideally every day.
The Do of ACQUIRE
This is the education part of do. Acquiring knowledge includes reading books, attending seminars and classes, doing online research, talking with experts, and working with coaches and mentors. You are gathering the information you need in order to take action. Which leads us to step number 3.
The Do of APPLY
This is the put-what-you’ve-learned-into-action stage. Applying the knowledge is where you make the offer to purchase, put your money on the table, take on your first client, buy the stock shares or gold, make the sales call, or ask for investment dollars. The technical phrase for applying knowledge is “putting your butt on the line.” Without the APPLY step, nothing happens.
True knowledge comes from putting what you’ve learned into real-world practice.
You have to Do all three
It takes all three parts of the Triple-A Triangle to achieve your goals and dreams.
Confucius said it best:
“To know and not do, is to not yet know.”
Many women accomplish the ASPIRE step and move into the ACQUIRE step and get stuck there. They attend all the seminars, read all the books, and are constantly researching online. The problem is they never move into the APPLY stage. Why? My guess is fear—fear of making a mistake, of losing money, of looking stupid, of people saying, “I told you so!”
It is only by applying the knowledge after you acquire it that those fears will dissipate. All three steps are necessary to achieve your financial dreams. It is primarily the apply stage that stops so many women.
My purpose is to offer clarity to define what you ASPIRE to, to offer information for you to ACQUIRE, and then, most importantly, to use real-life stories and encouragement as the catalyst for you to APPLY the knowledge in your life to have what you want.
These three stages are constantly in motion. You don’t move from one to the second and then to the third and then you’re done. You aspire, you acquire, and you apply. Then you acquire more and apply more, and acquire more and apply more, all the while holding onto your vision of what you aspire to. It’s an ongoing dynamic cycle.
And while you have your big goal or aspiration, you also have many smaller goals leading up to your main dream. Each one of these goals has its own Triple-A Triangle. And each is dynamic and in a constant state of flow.
As you move towards achieving your financial dreams, pay attention every now and then to how much of your doing is spent in each part of the Triple-A Triangle. Only when you find the right balance will you start to move through every stage—aspiring, acquiring, and applying—and begin to find financial success and freedom.
Both federal and state governments have significantly expanded the number of rules and regulations which now constitute criminal activity. Whereas it used to be that knowledge of a crime was required, our government has taken short cuts to prove a crime, with the result being that more and more business owners are being ensnared in the criminal justice system.
As well, as America seemingly devolves into narrow self-interests and as companies actively engage in crony capitalism to the exclusion of their less well funded competitors, government becomes a crass tool for the politically connected. The money flows to politicians who use the levers of government to deny and harass the disconnected for the benefit of their campaign contributing patrons.
Our transition from a free-wheeling, open economy to one dominated by focused special interests is being noticed around the world.
America’s standing on the World Corruption Index has steadily declined to 24th out of 178 nations. In the top three spots are New Zealand, Denmark and Finland. Also ahead of the United States are countries such as Barbados, the Bahamas, Qatar and Chile. The group advancing the index is Transparency International. They define corruption as "the abuse of entrusted power for private gain." Are you pleased by all the Wall Street bailouts?
By including this information we are not trying to discourage you from starting and/or running a business. Quite the contrary, the country needs entrepreneurs like you to pursue great opportunities and employ others along the way. So please do not be deterred. But please also be realistic. Government investigations and raids are on the rise. Some are brought against bad people who deserve to go to prison. However, a certain percentage of these government actions are brought against innocent actors, who had no intent to violate any law. But as the government now writes the laws, intent is not a factor.
Why the Standard Financial Advice Doesn’t Lead to Financial Freedom
Both my rich dad and my poor dad recommended that I go to college and get a degree; it was after receiving the degree that their advice took different paths.
After graduation, my rich dad advised me to continue my education by getting jobs that were based on learning. “You should work to learn, not to earn,” he said. He wanted me to get the valuable business and investing skills I needed to be a successful entrepreneur and investor, working on the B (Business) and I (Investor) side of the CASHFLOW Quadrant.
My highly-educated dad, my poor dad, constantly advised: “Go to school, get good grades, and then get a safe, secure job.”
He was recommending a life path focused on the left side of the CASHFLOW Quadrant—the E (Employee) and the S (Self-employed). My highly-educated dad was concerned with job security, not with financial freedom.
Why People Seek Job Security
The primary reason many people seek job security is because that’s what they are taught to seek, both at school and at home.
As adults, millions of people still continue to follow that advice. Many of us are conditioned from our earliest days to think about job security, rather than financial security or financial freedom. And because most of us learn little to nothing about money at home or at school, it’s only natural that we cling ever more tightly to the idea of job security instead of reaching for financial freedom.
If you look at the CASHFLOW Quadrant, you’ll notice that the left side is motivated by security. The right side is motivated by freedom.
Why Job Security Leads to Debt
The main reason that 90 percent of the population is working on the left side is because that’s the side they learned about at school. After leaving school, they often end up with lots of expenses and may fall into debt. This means they must cling ever tighter to a job, or to professional security, just to pay the bills.
I often meet young people who receive their college diploma along with the bill for their college loans. Several of them told me that they’re depressed when they see that they are in debt thousands and thousands of dollars for their college education. If their parents paid the bill, then the parents are financially strapped for years.
Most Americans today will be in debt for the rest of their lives.
The Search for Freedom
I know that many people search for freedom and happiness. The problem is that most people haven’t been trained to work from the right side of the Quadrant—the B (Business owner) and the I (Investor) side.
They have been trained instead to search for job security. Because of this training and their increasing debt, most people limit their search for financial freedom to the left side of the CASHFLOW Quadrant. Unfortunately, financial security and financial freedom are seldom found in the E or the S quadrant; true security and freedom are only found on the right side.
Searching for Financial Freedom
Many people spend their lives in search of security or freedom, but wind up instead going from job to job. It’s a long and vicious cycle of discontent. In my opinion, you should make a serious effort not to find a new job if you’re unhappy, but to begin moving to the B or I quadrants, and fast.
A new attitude and a new educational process must begin.
A New Pattern for Financial Freedom
Instead of just putting money into a retirement account and hoping for the best, people should feel confident about their education in whichever quadrant they choose.
Just as we study to learn a job, I suggest you study to learn to diversify and operate in more than one quadrant. The average rich person earns 70 percent from the right side and less than 30 percent from the left side of the CASHFLOW Quadrant. I’ve found that no matter how much money people make, they will feel more secure if they operate in more than one quadrant.
A Choice of Paths
The patterns I’ve discussed are different financial paths people can choose. Unfortunately, most people choose the path of job security. When the economy starts wobbling, they cling ever more desperately to job security and wind up spending their lives pursuing it.
At a minimum, I recommend becoming educated in financial security, which is feeling confident about your job and feeling confident about your ability to invest in good and bad times. Ideally, however, focus your education on financial freedom—read and study, take classes, attend seminars, and find a good coach—and take control of your financial destiny.
We all know how important reducing taxes can be for our family finances, especially in these difficult times. But are some tax strategies better than others? Are there some that can provide benefits to our children for generations to come while others may actually hurt our loved ones when they need the money most?
The answer is a resounding yes!!! Most tax plans focus only on you and your current situation. Tax planners often don’t take into account the trouble that a temporary tax plan can cause your spouse, your family or even yourself years down the road. Let me tell you a quick story to illustrate this point.
John, one of my early clients at ProVision, was advised to defer as much money as possible into his retirement years by contributing as much as possible to the pension plan of his corner grocery store. It seemed like a great idea at the time. But years later, when his family needed the money after he died a sudden death, they found out that they had to pay enormous taxes use the money in John’s pension plan. In the end, this client’s temporary tax plan ended up preventing his family from living the comfortable lifestyle they were used to.
This all could have been avoided and the family spared this crippling tax burden if the client’s tax strategist had focused their efforts on permanent tax benefits. Don’t let this happen to your family. A ProVision tax strategy includes several ways to permanently reduce taxes so spouses and family members are not subject to huge taxes when their loved one dies.
Permanent tax strategies can include employing children and contributing their nontaxable wages to a Roth IRA, using a corporation to make medical expenses deductible and converting taxable income from ordinary income to capital gains.
Why employees pay the most—and the rich pay the least
Many years ago, a newspaper reporter asked me how much I'd made during the year prior. I replied, "I made about a million dollars."
"And how much did you pay in taxes?" he asked.
"Nothing," I said. "That money was made by selling three pieces of property, and I was able to defer paying those taxes by using a Section 1031 exchange. I never touched the money. I just reinvested it into larger pieces of property."
A few days later, the newspaper ran the story with the following headline: "Rich Man Makes $1 Million and Admits to Paying Nothing in Taxes."
While I did say something like that, it was clear that the reporter didn't understand what I'd told him or he purposely distorted the message by leaving out a few key words.
Whatever the reason, it was a perfect example of different points of view coming from different parts of the CASHFLOW® Quadrant. He was thinking like an employee (E) on the left side of the quadrant, but I was talking like an investor (I) on the right side of the quadrant.
The worst advice to give your children
Most parents want their kids to go to school, get good grades, and find a safe, secure job. In reality, that is some of the worst advice we can give our kids. Why? The answer is found in taxes and debt. For people who earn their income from the E and S quadrants, there are virtually no tax breaks. Thus, those on the left side of the CASHFLOW Quadrant pay the most in taxes, often while making the least.
Again, as I wrote last week, being rich isn’t about how much money you make—it’s about how much money you keep.
The rich pay very little in income taxes because they don't earn their money as employees. They know that the best way to legally avoid taxes is by generating passive income out of the right side of the CASHFLOW Quadrant—the business (B) and investing (I) side.
If you earn your income on the left side of the quadrant, the only tax break you have is to buy a bigger house and go into greater debt. But the rich have scores of tax breaks offered to them by the government to encourage investing and business development - which generates more jobs. The rich can make millions of dollars and pay virtually nothing in taxes.
Not all income is created equal
The point is this: not all income is created equal. Passive income, the kind of income generated on the right side of the quadrant is much better than earned income, the kind earned on the left side of the quadrant. Passive income is taxed less, and it's also a result of cash-flowing assets, not selling your time as an employee.
But here's the catch, not just anyone can start making passive income on the right side of the CASHFLOW Quadrant. It takes financial intelligence to start a successful business and to make great investments. The good news is that anyone can increase his or her financial intelligence through financial education.
If you want to make more money, have more time, and pay less in taxes, the first step is knowing how money works and how to make it work for you.
To learn more about the tax strategies of the rich, I highly recommend the book Tax-Free Wealth by my tax advisor, Tom Wheelwright. Also, take some classes, attend seminars, find a good coach, and a great tax advisor. You won't regret it.
Want to learn more about investing than taxes? Join our free, financial education community here.
Quantitative Easing (or QE) has been very successful in reflating the US economy. In fact, it is the reason the United States is not in a severe recession now. Because of QE interest rates are very low, property prices are moving up (and moving up sharply in some locations) and the stock market has risen 15% since December, when the Fed announced it intended to double the size of QE 3 to $85 billion a month. Rising asset prices have caused “Household Net Worth” to return to its pre-crisis high, creating a Wealth Effect that drives economic expansion by fuelling consumption.
The problem, of course, is that when QE ends, interest rates will rise, property prices will fall, the stock market will tumble, Net Worth will shrink and the economy will go back into recession. So, what’s the Fed to do?
Fed Chairman Bernanke testified before the Joint Economic Committee of Congress on May 22nd. In response to a question from Congressman Kevin Brady, he said it is possible the Fed could soon begin to reduce the amount of money it creates each month, but that the decision would depend on the incoming economic data. Those words caused the Dow to fall 228 points by the end of the day.
The market’s fall was an overreaction. Most of Bernanke’s testimony suggested that QE was likely to continue at its current pace for some time to come. Still, the sharp selloff in the stock market gives a very clear indication of what will happen when the Fed does begin to slow down the speed of its printing presses.
Quantitative Easing is the most important factor determining the rate of economic growth and the direction of asset prices in the United States and globally. Therefore, it is crucial for investors to try to understand how the Fed sees the world in order to anticipate when it may adjust its money-printing policies.
The Fed has a dual mandate: to support employment and to ensure price stability. In his opening remarks to Congress last week, Bernanke stated that “the job market remains weak overall” and that, “consumer price inflation has been low.” The unemployment rate is 7.5% and the underemployment rate is 13.9%. The price index for personal consumption expenditure rose only 1% over the 12 months ending in March. That is at the low end of the Fed’s preferred range of 1% to 2%. Moreover, the trend is downward.
Bernanke also pointed out that Europe’s severe recession was damaging US exports and growth. Finally, he said fiscal austerity in the US was a drag on the economy, citing a Congressional Budget Office estimate “that the deficit reduction policies in current law will slow the pace of real GDP growth by about 1.5 percentage points during 2013, relative to what it would have been otherwise.”
In other words, the Fed believes QE is necessary and that it is working. Bernanke said, “In the current economic environment, monetary policy is providing significant benefits. Low real interest rates have helped support spending on durable goods, such as automobiles, and also contributed significantly to the recovery in housing sales, construction, and prices. Higher prices of houses and other assets, in turn, have increased household wealth and consumer confidence, spurring consumer spending and contributing to gains in production and employment. Importantly, accommodative monetary policy has also helped to offset incipient deflationary pressures and kept inflation from falling even further below the Committee’s 2 percent longer-run objective.”
And, he emphasized that “at its most recent meeting, the (FOMC) Committee made clear that it is prepared to increase or reduce the pace of its asset purchases to ensure that the stance of monetary policy remains appropriate as the outlook for the labor market or inflation changes.”
The one really serious concern the Fed Chairman expressed about QE was “the possibility that very low interest rates, if maintained too long, could undermine financial stability. For example, investors …. may reach for yield by taking on more credit risk, duration risk, or leverage.”
And here, of course, is the rub. The effect that massive fiat money creation has on economic stability is akin to that which cocaine has on someone suffering manic-depression. It causes short-term euphoria followed by a debilitating crash.
For now, the Fed intends to continue administering the stimulus. If the patient becomes too manic (for instance, if the stock market boom threatens to get out of control), the dosage may be reduced; but it won’t be stopped cold turkey. On the other hand, if the patient becomes to lethargic (and inflation threatens to become deflation), the dosage could well be increased.
That’s how things stand. The economy is sick. Fiscal policy is making it sicker. So, the Fed is feeding it uppers. Getting the dosage just right will be no easy task. Meanwhile, the stock market’s mood swings can be expected to become more frequent and more extreme.
The Pros and Cons of Becoming an Entrepreneur
As many of you know from previous posts, I don’t like other people telling me what to do. This, along with my independence and need to control my financial well-being, led me to business ownership. And you may feel the same way.
According to statistics compiled by the National Association of Women Business Owners:
“10.1 million firms are owned by women (50% or more), employing more than 13 million people, and generating $1.9 trillion in sales as of 2008.
One in five firms with revenue of $1 million or more is woman-owned.
Three quarters of all women-owned businesses are majority owned by women (51% or more), for a total of 7.2 million firms, employing 7.3 million people, and generating $1.1 trillion in sales.”
If you want to start your own business, what’s stopping you?
It may be fear, lack of knowledge, non-supportive partners, and more. But these are all things you can overcome. After all, starting a business is simply about rising to the occasion and putting your business idea into practice.
But before you start on the path to entrepreneurship, let’s discuss some of the pros and cons of business ownership. One of the best parts of owning a business is that you have full control over everything – marketing, products, services, finances, etc. This can be empowering, but it can also be difficult.
Having control means that you oversee everything. You’ll need to deal with many different kinds of people and manage all of the operations for your business. This will probably entail many hours of work unlike a typical, 8-5 job. And even after you put all of your time and effort into your business, there is no guarantee for success or that you’ll have a steady paycheck.
This is scary stuff, but the benefits of owning your own business can far outweigh your fears. For example, when you work for yourself, you set your own hours, work wherever you want and have the freedom to express yourself through your business.
You can also take advantage of all the tax benefits specifically for business owners. Plus, you can leverage OPM (Other People’s Money) and OPT (Other People’s Time) to grow your business and create the life you want.
Got a Business Dream?
Per the Small Business Administration, “half of new employer firms survive at least 5 years.” That means you have a 50/50 shot at owing a successful business for five years… so if you have dreams of being your own boss, go for it!
Start with your business idea and figure out what you need to do to make it a reality. Get the education you need to succeed, and build a support group of mentors, coaches, friends, and family members who will be there for you in both good and bad times.
Then, take action on your dream! Owning a business is full of positive, priceless experiences. You just need to be willing to do what it takes to get through the negative times to succeed.
What one thing are you going to do today to start turning your business idea into a reality?
For more inspiration, check out the success stories featured in “It’s Rising Time!” and for help pursuing your business dreams and goals of financial freedom, check out our free, financial education community here.
Why being wealthy is different (and better) than being rich
When I was a young boy, my rich dad told me about the difference between the rich and the wealthy.
“Many people think that being rich and being wealthy are the same thing,” said rich dad. “But there is a difference between the two: The rich have lots of money but the wealthy don’t worry about money.”
What rich dad meant was that while the rich might have lots of money, they also might have lots of expenses that keep them up at night. Or they might have a high paying job but have to get up to work everyday and have fear of getting fired or laid off.
The wealthy, on the other hand, don’t have these worries. Why? What’s the difference?
The definition of wealth
The definition of wealth is the number of days you can survive without physically working (or anyone in your household physically working) and still maintain your standard of living.
For example, if your monthly expenses are $5,000 and you have $20,000 in savings, your wealth is approximately four months or 120 days.
Wealth is measured in time, not dollars.
The difference between being rich and being wealthy
In 1989, Kim and I became millionaires, but we weren’t financially free until 1994. This is because there’s a difference between being rich and being wealthy. By 1989, our business was making us a lot of money. We were earning more and working less. We had what most people considered financial success.
Though we were rich, we still were not wealthy; much of our time was spent working to build our business and its systems. Our goal was to build the business to the point that it would cover all our expenses from cash flow each month—without us working. Additionally, we were invested in other assets like real estate and commodities to add to our cash flow.
By 1994, the passive income from our business and assets was greater than our expenses. At that point, we were wealthy, not just rich.
It’s not what you make…
Ultimately, it’s not how much money you make that matters but how much money you keep—and how long that money works for you.
Every day, I meet many people who make a lot of money, but all their money goes out of their expense column. Every time they make a little more money, they go shopping. They often buy a bigger house or a new car, which results in long-term debt and more hard work. Nothing is left to go into the asset column. It’s this kind of behavior that separates the rich from the wealthy.
I like the fine things in life just like everyone else; the difference is that I don’t have to work to purchase them, or go into deep debt. Rather, I spent the time necessary to be smart with my money, work hard, and build a business and investments that provide enough cash flow each month to cover my expenses—including my fun liabilities like cars and houses.
I don’t work for my money. It works for me.
Lots of people can become rich. But only financially intelligent people can become wealthy—and that takes a strong financial education that allows you to build cash-flowing businesses and assets.
The rest is just playing at wealth, and a lot of worry.
Wanna be wealthy? Learn how by joining our free, financial education community here.