What is your financial report card?
- Details
- Category: SME toolkit
- Written by with Bridget Olotu
- Hits: 366
What I have practically done is to take us through 5 different financial intelligences as developed by Robert Kiyosaki, I am sure you’d have been familiar with that name by now. Robert is one of the greatest writers on financial literacy globally today, has sold many more millions of financial books than any known writer in history and is one of my most revered financial mentors.
Now, we have been treated to the need to make more money, protect your money, budget your money, leverage your money and the need to improve your financial information. Interestingly, when your banker wants to do serious business with you, they ask for your bank statement or financial statement.
No banker asks you for your academic report card. By asking you to produce your financial statement, your bankers are interested in your financial intelligence, not academic intelligence. In the world of money, academic report cards don’t matter; what matters are financial report cards. Until our educational system incorporates financial education into our current educational curricula, we may be raising more educated people who lack financial literacy and who may not be able to grapple with the challenges of the brave new world we live in.
Achieving financial integrity in the new world order we are in therefore should become our focus as individuals and governments. Even at the government level, we have political leaders who lack financial intelligence. So when the guy gets into governance, he runs government business aground.
However, you can tell what result your financial statement is showing by the financial symptoms you have. When you have excessive debt, can’t budget well, spend more than you earn, are on the verge of losing your property to creditors, have acquired more of non-productive assets, etc, then your financial report card is a screaming proof that you lack financial integrity. Something is definitely wrong somewhere. But you know, we shrug our shoulders and walk away as if it doesn’t matter until the problem gets out of hand. Then we sit down and mope around looking for solutions.
How can you determine your financial statement and begin to work to improve it. There are four areas we can determine our financial integrity. They are as follows: assets, liabilities, expenses and income. I’ll briefly treat this from the rear.
Income
Your income statement is one important aspect of your financial statement. It determines your financial future and well-being. You must explore all legitimate ways to increase your income otherwise you’ll be forced to live below your means, or spend more than you earn, thus getting into debt, or you may be forced to resort to some violent activity to help yourself. But the most important thing to do is to look for ways to increase your income legitimately. Once you overcome this area, your financial challenges are half solved.
There are different types of income: earned income (what you’re paid on your job); passive income (what you earn on the side like royalties from an invention, intellectual property, or some business activity you do on the side); portfolio income (this is income you earn through investments without your involvement). The more streams of income you have, the more money you make, and the more financially intelligent you are, the richer you can become. To increase your income too, you need to manage your time and money effectively.
Expense
What you spend money on is a screaming reflection of where your financial future is heading. Robert’s rich dad put it better, “You can tell a person’s future by looking at what they spend their time and money on. Time and money are very important assets. Spend them wisely.” This statement is as true for business people as it is true for investors. Have you ever pondered what makes up your expense sheet? Can you profile your expenses for a week, month, or a quarter?
Most poor people say they don’t have money to go for more education or to add to their business. But when you look at their expense sheet, you’ll discover they are just kidding. They are actually wasting resources. Watch your habits, your attitude to money, your preferences and appetite. Some people’s financial future will be hurting because of the clothes they wear, what they eat, where they go, the relationships they keep and generally their lifestyle.
Assets
I was one of those who didn’t understand this concept very well at some point in my life because of the failure of our formal accounting system to correctly define what an asset truly is. In accounting, asset is whatever has value. Your shoes, TV, radio, used car(s), used clothes, phones, house, etc, are considered your assets and are part of your net worth. Right? Wrong!
They are not because the day you walk into a bank to ask for a loan and they ask you to produce a collateral, that day you will know that most things you think are assets, are actually non-productive assets and at worst are liabilities with little monetary value. For instance, the day you drive that new car out of the car shop the value drops by 20 - 37.5%. The definition of my mentor is rather staggering.
He says, an asset is what puts money in your pocket. So, that house you live in, that car you are riding, etc, as long as it doesn’t put money in your pocket is not an asset but a liability. And you cannot determine your net worth with such assets until they are actually sold.
Another mentor of mine categorises assets into two: productive and non-productive assets. This means, one asset puts money in your pocket and the other doesn’t. But you know why most people’s financial report card reads “financial failure,” it is because they have carefully acquired more non-productive assets than real assets that should put money in their pockets.
Liabilities
In accounting, liability refers to what you owe or are legally responsible to offset at some point in time. My mentor defines it differently. A liability is anything that takes money out of your pocket. You know why having the correct definition is important, it will guide you to have the right financial report card.
The irony is, we all cannot live without liabilities. But smart and financially intelligent people create more real assets to take care of their liabilities. We all need good cars, great houses, fine clothes, sound education, etc. These take money out of our pocket. But they are also necessities. So we need to acquire real assets, i.e. income generating investments, to cancel out these liabilities.
Putting these four items together will help you to determine how much you’re worth, where and what you’re spending your money on, how much you’re earning and why and what your financial future is. These items will produce your financial report card. What does your financial report card read?
Articles
What is your financial report card?
Category: SME toolkit Written by with Bridget Olotu Hits: 366
What I have practically done is to take us through 5 different financial intelligences as developed by Robert Kiyosaki, I am sure you’d have been familiar with that name by now. Robert is one of the greatest writers on financial literacy globally today, has sold many more millions of financial books than any known writer in history and is one of my most revered financial mentors.
Now, we have been treated to the need to make more money, protect your money, budget your money, leverage your money and the need to improve your financial information. Interestingly, when your banker wants to do serious business with you, they ask for your bank statement or financial statement.
No banker asks you for your academic report card. By asking you to produce your financial statement, your bankers are interested in your financial intelligence, not academic intelligence. In the world of money, academic report cards don’t matter; what matters are financial report cards. Until our educational system incorporates financial education into our current educational curricula, we may be raising more educated people who lack financial literacy and who may not be able to grapple with the challenges of the brave new world we live in.
Achieving financial integrity in the new world order we are in therefore should become our focus as individuals and governments. Even at the government level, we have political leaders who lack financial intelligence. So when the guy gets into governance, he runs government business aground.
However, you can tell what result your financial statement is showing by the financial symptoms you have. When you have excessive debt, can’t budget well, spend more than you earn, are on the verge of losing your property to creditors, have acquired more of non-productive assets, etc, then your financial report card is a screaming proof that you lack financial integrity. Something is definitely wrong somewhere. But you know, we shrug our shoulders and walk away as if it doesn’t matter until the problem gets out of hand. Then we sit down and mope around looking for solutions.
How can you determine your financial statement and begin to work to improve it. There are four areas we can determine our financial integrity. They are as follows: assets, liabilities, expenses and income. I’ll briefly treat this from the rear.
Income
Your income statement is one important aspect of your financial statement. It determines your financial future and well-being. You must explore all legitimate ways to increase your income otherwise you’ll be forced to live below your means, or spend more than you earn, thus getting into debt, or you may be forced to resort to some violent activity to help yourself. But the most important thing to do is to look for ways to increase your income legitimately. Once you overcome this area, your financial challenges are half solved.
There are different types of income: earned income (what you’re paid on your job); passive income (what you earn on the side like royalties from an invention, intellectual property, or some business activity you do on the side); portfolio income (this is income you earn through investments without your involvement). The more streams of income you have, the more money you make, and the more financially intelligent you are, the richer you can become. To increase your income too, you need to manage your time and money effectively.
Expense
What you spend money on is a screaming reflection of where your financial future is heading. Robert’s rich dad put it better, “You can tell a person’s future by looking at what they spend their time and money on. Time and money are very important assets. Spend them wisely.” This statement is as true for business people as it is true for investors. Have you ever pondered what makes up your expense sheet? Can you profile your expenses for a week, month, or a quarter?
Most poor people say they don’t have money to go for more education or to add to their business. But when you look at their expense sheet, you’ll discover they are just kidding. They are actually wasting resources. Watch your habits, your attitude to money, your preferences and appetite. Some people’s financial future will be hurting because of the clothes they wear, what they eat, where they go, the relationships they keep and generally their lifestyle.
Assets
I was one of those who didn’t understand this concept very well at some point in my life because of the failure of our formal accounting system to correctly define what an asset truly is. In accounting, asset is whatever has value. Your shoes, TV, radio, used car(s), used clothes, phones, house, etc, are considered your assets and are part of your net worth. Right? Wrong!
They are not because the day you walk into a bank to ask for a loan and they ask you to produce a collateral, that day you will know that most things you think are assets, are actually non-productive assets and at worst are liabilities with little monetary value. For instance, the day you drive that new car out of the car shop the value drops by 20 - 37.5%. The definition of my mentor is rather staggering.
He says, an asset is what puts money in your pocket. So, that house you live in, that car you are riding, etc, as long as it doesn’t put money in your pocket is not an asset but a liability. And you cannot determine your net worth with such assets until they are actually sold.
Another mentor of mine categorises assets into two: productive and non-productive assets. This means, one asset puts money in your pocket and the other doesn’t. But you know why most people’s financial report card reads “financial failure,” it is because they have carefully acquired more non-productive assets than real assets that should put money in their pockets.
Liabilities
In accounting, liability refers to what you owe or are legally responsible to offset at some point in time. My mentor defines it differently. A liability is anything that takes money out of your pocket. You know why having the correct definition is important, it will guide you to have the right financial report card.
The irony is, we all cannot live without liabilities. But smart and financially intelligent people create more real assets to take care of their liabilities. We all need good cars, great houses, fine clothes, sound education, etc. These take money out of our pocket. But they are also necessities. So we need to acquire real assets, i.e. income generating investments, to cancel out these liabilities.
Putting these four items together will help you to determine how much you’re worth, where and what you’re spending your money on, how much you’re earning and why and what your financial future is. These items will produce your financial report card. What does your financial report card read?