Most important thing about money you will learn

You must know the difference between an asset and a liability, and buy assets.
If you want to be rich, this is all you need to know. This may sound unbelievably
simple, but most people have no idea how powerful this rule is. Most people
struggle financially because they do not know the difference between an asset
and a liability.
If road to richness is that easy then how most of the people are not rich? The answer lies in the
basic education, schools teach how to hear but they don’t teach how to listen, they teach us
how to read but don’t tell us how to read between the lines, they teach us literacy but don’t
teach us financial literacy which is essentially just understanding the difference between asset,
liability, income and expense.
In financial literacy its not the numbers but what the numbers are telling you that matter.
People read but they don’t understand, there is a difference between the two.



This is a cash flow of an asset, basically this means that anything that puts money in your
pocket. Usually it includes, but is not limited to mutual funds, insurance units, annuities, rental
incomes, your job, business, stocks, dividends. Royalties from various sources. And as such.



This is a cash flow statement of a liability. Liability is basically everything that takes money
from your pocket, it includes but is not limited to, taxes on things that you have, cars that add
to expenses such as insurance and petrol, hundreds of bills that start when you buy something.(
includes a postpaid mobile phone that you might not need to a satellite TV connection that
takes some amount of money from your pocket every month. And now onto the main thing, a
house is a liability IF to hold that house you are paying taxes/insurance/mortgage/maintenance
that exceed the amount of money you would have got it on rent. But if the cost to hold that
house is less than that then it is an asset because indirectly it is saving you from a permanent
monthly bill of rent. Expense is taxes, foods, rents, clothes, entertainment, and travels. Etc



This is a cash flow of a person who does not buy anything. This is a person who basically lives
with hand to mouth, he spends what he earns. Suppose this person earns 100 a month typically
his expenses are 50 a month for rent, 25 for clothes and rest in various bills like electricity/cell
phone and stuff.


This is a cash flow statement of a normal family person whose income first goes in servicing
liabilities then these liabilities add to the expenses. This is the category in which most persons
belong to, the key to getting rich for this person is to reduce his liabilities and increase the
assets.



This is the cash flow of a person who is by definition rich, this person is not depending of
money to survive, this person has enough income generated from his assets which can by and
large service his expenses, so even if he is not earning anything out of his job, he still can live
with the same standard of living that he was living before he stopped working or his job
stopped paying. This is not as difficult as you can imagine, just control your life for some time
and you’ll be rich in no time.


This is the ideal rich person, someone who is not dependent on one’s own physical work and
this person would continue to get more and more rich , whose assets are big enough to grow
over themselves, as well as provide for expenses, suppose someone’s expenses is 1000 a
month, and one can get about 10% a year as a secure return then this amount is at least
1,30,000 so that the return on investment can provide 1000 a month as well as add to the
capital principal amount, so that the return keeps on growing on a monthly basis ( read
compound interest for that)



To understand the effects on a normal family, let me give an example of a newly wedded
couple.

They work day and night and increase their direct job income, and they decide that they would
buy a new home, instead of living on rent. When they get in new home they get new expenses
such as mortgage, property tax, maintenance, and as such. Then they buy new things such as
new furniture, new car and new products so that their home looks that of a rich person. And
suddenly they realise that they have increased their expenses from new mortgage loans, to
credit card loans, and consumer loans.
SO TO GET RICH, CHOSE THE CASH FLOW PATTERN YOU WANT
TO HAVE AND YOU ARE GUARANTEED TO BE RICH.
IF YOU WANT TO BE RICH, BUY ASSETS
POOR SPEND WHAT THEY EARN
OTHERS BUY LIABILITIES THINKING THEY ARE ASSETS
LEARN ACCOUNTING