Taking the ‘Numb’ Out of the Numbers by Kim Kiyosaki

Taking the ‘Numb’ Out of the Numbers

Learn how to analyze the lifeblood of any investment

I truly believe so many women have been brainwashed into thinking that we are not good with numbers. Gender stereotypes beginning in grade school pushed girls toward reading and writing, while steering boys toward math and science.

While there are many problems with this methodology, here’s the one that most concerns me: Money is a life skill. The fact that it’s not taught in most schools today tells you something about how we are failing our children — we simply aren’t preparing them for the real world.

Money and finance are all about numbers. They tell us how well we are managing our household, running our business or career, and investing our money. If you intend to be financially fit and reach your financial dreams, then you’ve got to become very comfortable with numbers. And it doesn’t even need to be complicated — you just need to know how to add, subtract, multiple and divide.

What Numbers Are We Talking About, Exactly?

If your eyes glaze over when you look at numbers, or your husband currently handles all your finances, then it’s time for a crash course in financial statements. There are three main types:

  1. Income Statement. This is a record of the Income (money flowing in) and Expenses (money flowing out) for a specific time period (a month, quarter or year typically).
  2. Balance Sheet. This is a register of Assets (things that put money in your pockets) and Liabilities (things that take money out of your pockets, aka debt).
  3. Statement of Cash Flow. This shows you the cash coming in, the cash going out, and the remaining cash at the end of a specific time period.

Whether you are looking at investing in a friend’s private business, the stock shares of a publicly traded company, or a rental property, it’s not much more complicated than understanding Income, Expenses and Debt (which cover the Income Statement and the Liabilities column of the Balance Sheet). Let’s examine these more closely, as it relates to investments in particular:

Income. It’s important to determine any potential to increase the income of an opportunity. For a business, is the company expanding into new markets? Is there a new product being launched? For an apartment building, can you add washers/dryers to each unit to increase rent? Can you raise rent or a charge a premium for pool-facing units?

Expenses. It’s crucial to ensure money is being spent in the most effective manner possible to improve the value of the property/company. For example, increasing the budget allocated to the marketing department of a company that’s launching a new product may be a good use of expenses to increase the overall value of the company. Likewise, spending money on carpet, paint and landscaping to update a rental property and increase rent may boost your bottom line.

Debt. While you may have been conditioned to think debt is bad, it’s not always the case. In fact, getting good debt will most likely be part of your plan to financial independence. How does it work? If borrowed money is spent on consumption, such as a vacation or new shoes you charge to your credit card, then that’s bad debt. Bad debt is also debt that you pay for out of your own pocket. Good debt, on the other hand, is debt that someone else pays for you. For example, our tax strategist, Tom Wheelwright, borrowed money to grow his business in its early years. That debt was paid back out of the positive cash flow of his business. Similarly, when you purchase a rental property, you will most likely have a mortgage or loan on the property. If you manage the property well, then the rent from the tenant pays the monthly mortgage payment — another example of good debt.

Putting These Numbers into Action

Now that you have a cheat sheet of these important terms and their definitions, it’s time to analyze a few investment deals to see how the numbers shake out. Pages 137-143 in my book, “It’s Rising Time” will walk you through several scenarios and how to properly assess their financials. If you’re serious about taking action on your financial dreams, then this is the perfect place to start. And remember: Each number is a clue that helps you find the truth about an investment opportunity. There’s no reason to feel “numb” by the process. The more exposure you have to these numbers, the more comfortable you will become finding and using them.

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