07
Apr

Many are struggling because they are unable to differentiate between riches and wealth.

 

It is easier for a camel to pass through the eye of a needle than a rich man to… I believe many of you have read or heard this verse quoted in the bible, but how many of you note that the word “Rich” is used and not the word “Wealth”?

 

Do you want to be rich or wealthy? What is the difference?

 

RICH: The amount of liquid assets (cash) you have on your person or held in custody on your behalf by a third party.

 

WEALTH: The number of hours, days, months or years you and your family can sustain your current standard of living with none of you having to work. (Make your payslip redundant allowing you to work because you want to and not because you need to.)

rich

Now you see why the statement above uses the noun rich not wealthy. The rich person is always at risk of losing all his wealth either through their own actions or those of others of whom they have no direct control. Many of us struggle because we are unable to differentiate between riches and wealth; we acquire liabilities in the belief that they are assets, we put our money into schemes and claim that we are investing, we participate in savings groups yet we call them investment groups, we read and hear opinions and take them as advice.

 

To many of us we are not able to differentiate financial terms and thus end up making unwise financial decisions. For many of us we have a problem differentiating between an asset and a liability and keep straddling around claiming our homes as assets. But here is an easy way to differentiate them. We have been schooled to believe that property such as a house is an asset. But here is the test. If the property after meeting all its obligations still puts money in your pocket then it is an asset. If you need to assist the property meet its obligations then that’s a liability.

 

Invest in assets

 

So to create wealth you need to invest in assets, the first of which is yourself.  That does not mean a face lift, going to the gym or buying new cologne. You need to become financially literate and by extension increase your financial intelligence quotient (FIQ). Intelligence is indicated by your ability to make finer distinctions.

 

It is important to know what income is. The first answer that comes in the fold is that income is the money I receive from an employer or business. Secondly one can deduce income as either earned, passive or portfolio. Earned income is what one earns by exerting effort and time. Passive income is generated without exerting any effort or time such as rent from a property, while Portfolio income is income generated from investments in shares and stocks.

 

While both answers are correct, the second indicate a higher FIQ. It is critical to develop your FIQ if you are to create sustainable wealth. I am a strong advocate for the back to basics approach to wealth creation propagated by Robert Kiyosaki. His childlike writing makes understanding of financial terms easy and implementation even easier. Read the books Rich Dad Poor Dad, Cash Flow Quadrant, and Guide to Investing. These books will increase your financial intelligence, if you can also attend seminars on financial literacy it helps as our busy lifestyles make it difficult to find time to read especially as we spend more time acquiring skills to increase our earned income.

cashflow-101-3d

If you have a chance to play a life simulation game called Cash Flow 101 please do, so buy it or join one of a number of Cash Flow clubs in Kenya. These games have been proven to be the most effective way to internalise new ideas and concepts, they also provide a safe environment for experimentation.

In summary we would like you to look at the following steps and try following them as a wise Chinese man said “If you don’t know where you are going, any road will get you there.”

 

STEP 1: Know your means (email financialfreedom@quadrantshift.org and we shall send you a free template).

 

STEP 2: Live within your means – prepare a written budget, use a computer if possible as it makes it easier to update, a spreadsheet or personal financial software such as Quicken and Microsoft Money are indispensable.

 

STEP 3: Increase your means – develop multiple streams of passive income by investing in real assets.

 

We wish you success in achieving your goals as you work towards becoming financially free.

7 Responses to You May Be Rich, But Are You Wealthy?

  1. Baligwibwa ALFRED

    I like this especially at this time of the year when resolutions are being drawn. I admit having been operating poorly financially simply due to lack of counsel like this; big up to you.

  2. Hi,we need mentors like you to come and assist in buying real estates.Its hard for starters alone.Start mentoring people like Ron legrand is doing.Be our kenyan Ron.

  3. Timothy Byakika

    Hi,
    sound advice indeed especially for the busy professional who hardly has time to ponder on issues such as these. Advice taken.

  4. tom

    Beautiful piece of advice Rob, have missed you for so long. I asked a while ago about holding seminar in Thika and didn’t get a response. I miss the play groups of cashflow 101 game. How can you help pls?

  5. vincent

    I like this especially at this time of the year when resolutions are being drawn. I admit having been operating poorly financially simply due to lack of counsel like this; big up to you.

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