You need to invest in your own financial literacy if you are to stand any chance of achieving any level of financial freedom and financial independence. In this blog post, we’ll look at a few basic concepts of financial literacy, namely income, expenses, assets and liabilities. Financial jargon bores me, but these are basic concepts that you need to understand – I will try and make it fun – I promise.
Financial Literacy definition
From Wikipedia: Financial literacy is the possession of the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.
Raising interest in personal finance is now a focus of state-run programs in countries including Australia, Canada, Japan, the United States, and the United Kingdom. Understanding basic financial concepts allows people to know how to navigate in the financial system. People with appropriate financial literacy training make better financial decisions and manage money better than those without such training.
This wiki shares further insights into the topic of international findings about financial literacy. To read the wiki in full you can go to: Financial literacy – Wikipedia
It is likely that you came to this blog post because you are looking to achieve some level of financial freedom and financial independence. It is likely you are tired of having more month left at the end of your money and you are tired of working for a boss. For the rest of the time you invest in reading this, it is important to keep this image in mind:
Financial Literacy around Income
There are many ways of generating income and it is a misconception that you have to study hard at school or college to get a good job. There are almost infinite ways of generating income, and there is a vast difference between EARNING income and GENERATING income
“The rich don’t work for money”
Robert Kiyosaki, author of the best seller “Rich dad, poor dad”
Robert Kiyosaki goes on to explain in this book, and in other books and educational materials as well, that the rich makes their money work for them.
So, as a part-timer, how do you make your money work for you?
Well, the first thing you need to do is to spend less than you earn. This is important because if you spend all the income you earn or generate, you don’t have surplus money to put to work for you in the first place! Of course there are creative ways to raise money and use other people’s money to generate income. However, those methods and tactics come with it’s own challenges and risk and these are concepts beyond the scope of what I want to share with you today.
If you’d like to learn more about generating income part-time, check out this blog post: Extra Income for Full-Time Employees
To enable yourself to spend less than you earn, you first have to understand how to structure your budget. A budget is an important tool to tell your money where to go and THEN track how well you perform compared to your plan, rather than just keeping track of where you money flows to. Money is like water, if you let flow, it is not likely to stay in your pockets. For more details on how to structure your budget effectively, check out this video on my YouTube channel: Structure your budget with purpose.
Robert Kiyosaki’s cashflow quadrants:
“The best investment you can ever make, is to invest in yourself”
Warrent Buffet, CEO of Berkshire Hathaway
Financial Literacy when it comes to assets
One of the best ways to make your money work for you is to invest in yourself. This means developing the skills and knowledge so you can learn how to develop and maintain assets. But what is an asset? It is an archaic idea to think something that just grows in value is an asset. Yes, it may be a good investment as long as it really grows in value and people keep perceiving that the investment has value, but what happens in the interim?
It cannot be considered an asset if you are the only one that sees the value in it. No, an asset is something that generates income in the short term, while its value increases over time. In her book “The Wealth Chef” Ann Wilson says it like this: “An asset is something that makes money flow back into your life”. If you’d like to read her book, you can buy it via loot, by clicking on this affiliate link:
Examples of assets are rental properties that bring in more than they cost you, investments that generate dividends or even a YouTube channel that generate income through adverts or paid collaborations. None of these things appear out of the blue and fall in your lap though. This is where the skills and knowledge you gain through doing comes into play.
Financial Literacy regarding liabilities
On the opposite side of wealth scales, Ann Wilson says quite simply, that a liability is something that makes money flow out of your life. Take some time to assess your income and expenditure – use a income statement to do that. Let me know in the comments or by getting touch if you’d like me to send you income statement and balance sheet templates. If you purchase Ann Wilson’s book, she also makes some free resources available.
It could be that you have been spending money on liabilities without even knowing it, but now that you know, what are you going to do about it? Be honest with yourself – the things you spend your time, effort and money on is a reflection of the things that matter to you. IF you’ve been unwittingly increasing your liabilities, it is time to change the direction of the flow of your money and start investing in assets that will make more money flow back into your life.
Examples of liabilities are the car you drive, the house you live in, the toys you like to play with which cost money to buy and maintain. That’s not to say you should stop having fun altogether! As long as the things that take money out of your life add value, it could still be considered an asset, BUT (there is a HUGE BUT here), those costs need to be covered somehow!
Healthy Wealth Chef Money Flow
Make your assets generate the required income to cover your expenses and pay for your liabilities!
In Ann Wilson’s book she says that “A wealthy life (and a healthy business) is one where the Income Statement and Balance Sheet compartments are functioning with healthy wealth flow patterns – a BIG flow between income and assets drawers and a small flow between your liabilities and your expenses drawer”. Once you read her book, you’ll understand the drawers reference better – I’d really recommend you get your hands on it.
Be blessed and thank you
As always, thank you for reading my content. I hope this helps you get clear on what you need to do about your own financial literacy and do so in such a manner to turn your finances into a fun part of your life that will help you thrive in the future.
