{Excerpts from My Book; WALKING IN FINANCIAL FREEDOM}
Money needs to be understood. Most people never understand the basics of money and then they wonder why it never gets well with them. Financial language is different. Even if you are not a student of finance or economics knowing some simple terms like net worth, assets, liabilities, investment, liquidity, bearish and bullish markets, simple and compound interests, etc is a good idea. Remember, money is used by all, so it is important to know how it operates. Only when you know the language of the money you can know and understand what it says to you.
Wealth can simply be described as your ability to sustain “a lifestyle”, and to spend money on whatever you choose without depleting your cash flow. This can only be achieved if, through careful planning, you can subsume all your expenses within your income and live comfortably without working for the rest of your mortal life. Please, try and measure your definition of wealth in time. Take for instance, if you lose your job today, how many days can you survive based on your assets? This should be a food for thought for you if you are employed, what are you investing your income on? You must have assets generating income to cover all your monthly expenses, that is how you can be independently wealthy.
What are Assets and Liabilities here?
Assets are income-generating properties. Things that put money into your pocket i.e. stocks, bonds, mutual funds, commercial properties, skills, special abilities, businesses, etc
Liabilities are money-consuming properties. Things that take money out of your pocket i.e. personal belongings (Clothes etc), cars, etc
Now that you know what Assets and Liabilities are, what is your net worth?
Net worth is calculated by subtracting your liabilities from your assets. You may be a high-income earner yet be a low-net-worth individual. This means that your outflow (expenses) is greater than your inflow (income). This scenario applies to most people and even countries. On the other hand, you could be a low-income earner and have a high net worth. This means that not only do you live within your means, but you endeavor to create a surplus at all times. This is the best way to create wealth; you use money to create more money. Otherwise, one will leave all his/her lives on the deficit, serving people with a surplus. The “financial world” is a hoax where many people sweat the stuff for few to reap whether at the individual, corporate or country levels.
