Then I immediately set the next goal—to acquire more investments to increase my cash flow so that the cash flow was greater than our living expenses. I gave myself five years to accomplish this. We actually reached our infinite wealth goal in only three years, and we were free.
A Distinction About Goals
My fitness trainer taught me something valuable about setting goals. JR works with a lot of tri-athletes and marathoners. He noticed a pattern in the athletes after they completed a major goal, such as running a marathon or competing in a triathlon. He often saw the athletes lose their drive and interest in training after their event. In fact, the motivation of some athletes decreased within days of finishing the event. Sometimes the athletes experienced deteriorating moods and even depression.
In talking with the men and women he trained, he discovered that these athletes trained at a very high level for months towards their goal of winning the event, beating a certain time, or simply completing the event. The training was demanding.
He began to realize that these athletes, who were driving towards their goals for months, now had no goal. They were drained from the event and needed time to recuperate, so it was tough for them to get excited about the next event. Yet the more time that passed, the more their interest waned, as did their fitness. He said it would shock him to see a person who was at the peak of fitness right before his or her event put on 30 pounds and decline in health in just a matter of months.
His solution? About one or two weeks before the athlete’s event, while the athlete is still excited about his or her upcoming event, JR sits them down and makes sure they set their next goal. They set their next goal before accomplishing the goal at hand. Do you think this strategy could work with anything in life? It does for me.
Your New BFF
I assume you want your freedom as soon as possible and that you want to live at your current standard of living or higher. And I assume you want to be the one in control of your financial destiny, not someone else. If those assumptions are correct, then the rest of this book is dedicated to you and your infinite-wealth goal.
I know it’s been said that diamonds are a girl’s best friend, but I would argue that your real BFF (Best Friend Forever) is CASH FLOW because cash flow will get you to your financial dreams. And then you can treat yourself to all the diamonds you want.
To rise above the need for a paycheck takes…
If you are familiar with the Rich Woman and Rich Dad philosophy, then some of the concepts in this chapter will be a review—with a twist. When it comes to your education, repetition is one effective way to learn.
Information about money that does not match up with your core thoughts and beliefs will be filtered out. But as your mind is opened, you may see familiar concepts in a new light.
Financial Statements Made Simple
In the Rich Woman world, there are fundamental principles that are impossible to omit when we’re talking about women, money, and investing. It begins with the financial statement: the income statement, the balance sheet, and the statement of cash flow.
You’ll notice that the financial statement shown here is not your traditional accounting financial statement. That is because we like to keep things simple.
The Income Statement
The Income Statement is made up of:
• Income (money flowing in), and
• Expenses (money flowing out).
Income
All income that flows into your household flows through the income column of your income statement. This includes all three types of income:
1. Ordinary earned
This is income that you work for and includes your wages, tips, salaries, and commission from your job or business.
2. Portfolio
Portfolio income includes profits from any investment sales. These capital gains can come from the sale of stocks, businesses, and real estate.
3. Passive
This is income from rental properties, limited partnerships in which you invest money but are not actively involved, and other similar enterprises. Passive income can also come from interest on savings accounts, bonds, certificates of deposit (CDs), stock dividends, patent royalties from inventions, and royalties from books, songs, and other original works.
Your job as an investor is to convert your ordinary earned income into portfolio and passive income.
It’s important to note that each of these types of income is taxed at a different rate. Ordinary income is taxed at the highest level. The government takes the biggest chunk from the money you work so hard for in your job or business. Portfolio income is taxed at a lesser rate. Passive income is taxed at the lowest rate. When you invest for passive income, your money is working for you, plus you get to keep more of that money since it will be taxed at a lower rate.
Expenses
These are the monthly expenses you pay out each month, including such things as your mortgage payment (or rent payment), car payment, student loans, food, car and gas, utilities, insurance, clothes, eating out, medical bills, and so forth.
The Balance Sheet
The Balance Sheet is made up of:
• Assets (things that put money in your pocket), and
• Liabilities (things that take money out of your pocket).
Assets
The Rich Woman definition of an asset is not the definition you’ll hear from your traditional accountant. The conventional accountant will tell you that an asset is “something of monetary value that is owned by an individual or company.” By that definition, your alarm clock and your everyday dishes could be considered assets!
Most accountants go crazy with this definition because they want to classify your shares of stock, your jewelry, your personal residence, your cars, and your mutual funds as assets. To us, none of these things has any value until the day you sell them. If you sell something and make money, it’s an asset. But if you sell something for a loss, then it most definitely is not an asset.
Using the Rich Woman definition:
An asset is something that puts money in your pocket, whether you work or not.
Why use such a definition? Because a clock and some plates and bowls will not get you closer to your financial dream, but something that is putting money in your pocket whether you work or not will.
Liabilities