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Because we don’t have good financial education at school, we learn financial literacy from our families.
Poor people tell their kids that the government is going to take care of you and that you should rely on social security and medicare to take care of you.
Poor people are also non-investors or at best passive investor.
A passive investor is someone who runs around yanking the coattails of their business buddies asking what they should
What my middle class mother and father taught me was to get a good education, so that I could get a good job.
Place it safe and be middle of the road, prepared for the unknown and inevitable. Buy a house and have a family. Retire with a pension after years of dedicated hard work.
Middle class families tend to be passive investors who rely on financial advisors to make “smart” investment decisions with their money.
This enables people running around and gossiping about what is the best way to invest the ten grand they have saved that they’re willing to risk losing.
What the wealthy teach their kids is to assume the risk of being an entrepreneur and creating companies and jobs for others. Surround yourself with people who are smarter and brighter than you in order for them to execute your vision.
Entrepreneurs like Bill Gates and Warren Buffet.
Investors like Donald Trump and Warren Buffet.
In 1974 the US changed from socialism to capitalism. It forced e and s to become investors. But at best they are putting money in a 401k where they’re relying on an expert to make investment decisions on their behalf.
Financial statement is your report card as an adult. A banker and creditor cares less about whether you’re an a or b student.
If you’re a business owner or an investor, a bank or creditor will ask you for a financial statement.
If you’re self-employed or an employee, they will ask you for or pull your credit report.
Words mean everything when it comes to financial literacy.
Assets and Liabilities.
Anyone who uses the term that their house is an asset is using the wrong definition for what an asset truly is.
An asset is something that puts money in your pocket, regardless of whether you work or not.
A liability is something that takes money out of your pocket, regardless of whether you work or not.
If you were to ask someone whether their house is an asset or liability, and they reply asset, because a house appreciates over time…this would be an example of poor financial literacy.
The problem is calling an liability like the house you live in, an asset, when it’s not putting anything into your pocket monthly, and if you were not able to work for an extended amount of time, the house would immediately become a liability.
A financial statement will reflect to a banker or creditor how well you manage cashflow.
Similar to how a creditor will assess ho well you manage your personal finances through a credit report.
Cashflow of a poor person is barely enough cash in…all cash out.
Cashflow of the middle class is cash flow in to pay for car, kids, and mortgage (contract till death). Work hard. Retire old.
Home equity loans. A big home that puts them further into debt. Many home owners treat their homes like a large ATM. When the value of their home goes up they borrow money out.
A wealthy person has assets that puts money into their pocket whether they are working or not working.
The universe does not respect people who blow money…
The universe does not respect people who bury money…
The universe rewards those who multiply money.
The poor tend to overspend money…
The middle class bury the money (401K, Mutual Funds, Roth IRA)…
The wealthy multiply money.
It’s not so much how much you make it’s where you put you’re money.
Common things people say:
“Get out of debt”
“Invest for long term”
This advice used to work, but no longer works.
Savings stocks bonds and mutual funds are the riskiest of all investments, while most people think that they’re the safest.
Financial experts on tv are sales people for big corporate news channels. They push economic agenda and inspire people to work harder save money and get out of debt.
When you’re told to work hard as an employee or self-employed, you’re only option is to make more money, which raises your tax bracket, and you are taxed even harder.
This was put into effect in 1943.
In 1986 tax reformat self-employed and specialized small business were taxed more.
In 1971, the US switched from the gold standard to currency. President Nixon executed this order. Money being a currency means that the government can print currency faster than you can save it.
So the money you save depreciates while you save it. It’s designed to lose money. Which is why you’ll go broke over time saving money.
1% on anything you’re saving.
Not a plan for you to become wealthy.
Risk = Control
Risk is lack of control
The difference between an active investor and a passive investor is control.
People want you to believe investing is risky. They need to leverage your fear and financial illiteracy in order to make as much money off of your ignorance.
You want 6 controls as an active investor:
5. Financial Ed/Management
The Game of Money
Pre-Game show : Paris Hilton was born with money. This is what a pregame would look like. People born with a silver spoon in their mouth.
25-35 1st Quarter
35-45 2nd Quarter
45-55 3rd Quarter
55-65 4th Quarter
Over-Time: Fear of running out of money during retirement and having to still work. So-so security running out or not being able to provide money for baby boomers.
Out of Time:
Don’t spend your health attaining wealth, only to live the latter part of life trading wealth to maintain poor health.
Regardless of who we are, we need to win the game of wealth creation.