Will you ever get rich?

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Many people find it difficult to analyse their personal finances at a macro level. They just live all their life sleepwalking without knowing where they are headed in terms of building their financial wealth. But, it is really not that complex to get a birds eye view of your financial future.

One can easily tell if a person is going to be rich or not just by looking at their "cash-flow statement"!

A cash-flow statement is a very simple tool anyone can use to keep track of their personal finances. It has two parts - Income Statement and a Balance Sheet. Below is an example of a simple cash-flow statement.

Profit/Loss Statement

"Profit/Loss Statement" helps you keep track of your income and expenses. Here you can write down your earnings like salary, savings account interest earned, etc. You can also write down your expenses like food, rent, shopping, etc.

Balance Sheet

"Balance Sheet" helps you keep track of your assets and liabilities. Here you can enter your assets like stocks, bonds, real estate, etc. Also write your liabilities like your monthly EMIs, Credit Card Debts, Home Loan (Mortgage), etc.

How does the cash "flow"?

                    1. Asset adds to Income
                    2. Liability adds to Expenses
                    3. Expenses steal income!

Most important skill for getting rich is to identify if a thing is an asset or a liability.

It might sound very simple, but it is not easy! In fact, most middle-class people acquire assets which they think are assets, but in reality they are a liability! Think about your home loan, would the home loan EMI add to income or expense?

Example 1: Cash-flow of the Poor

Example 2: Cash-flow of the Middle-Class

Example 3: Cash-flow of the Rich

Action Needed:

Take couple of minutes from your busy schedule, grab a paper & pen and start drawing a simple cash-flow statement representing your personal finances and judge yourself!

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