I have always been told, “Go to school, get good grades, so you can get a safe and secure job.” That sage advice may have been accurate back in the Iron Age when it originated, but I don’t think it applies today. Nevertheless, even with new technology, corporate downsizing, and outsourcing, the same maxim is being passed down. It is time that our advice matches the Information Age. I would like to illustrate the difference of opinion between the rich and the poor. The following lesson in Financial Intelligence 101 will hopefully broaden your current understanding of money and dispel many poor/middleclass falsehoods.

    Many people have absolutely no idea about what money is. You work for it, spend it, and even dream of it, but do you understand it? Is that ten-dollar bill you just pulled out of your pocket real? In short, it used to be. Let me explain. U.S. currency before 1971 was commodity money, which was backed by gold. From the Gold Standard, the FED (short for Federal Reserve) transitioned to fiat money. Fiat money was introduced because gold is a scarce resource and economies growing quickly couldn't always mine enough gold to back their money requirement. While selling the idea that fiat money paralleled commodity money, economists never explicated that our money was now nothing more than an idea! To illustrate, when you borrow money from a lender, that IOU contributes to the new money supply.

    Now that we are through the boring part, it is time to challenge conventional wisdom. To better illustrate points of view, I will list common phrases in both the rich and the poor perspectives. As the poor may say, “Investing is risky, save your money.” The rich may respond, “Ignorance is risky, learn to manage risk.” The poor will say, “I can’t afford it.” While the rich ask, “How can I afford it?” The first is a statement; the second is a question that forces you to think of solutions. While the poor are cutting up credit cards and trying to extinguish debt, the rich are learning the difference between good and bad debt, and leveraging to get richer. While the poor may think of there house as there greatest investment; the rich man would say that if your house is your greatest investment, your in trouble.
To better understand the different perspectives, you need to understand how the rich think. While both sides of the pendulum agree that education is important, they disagree on course of study. While the poor are learning how to climb the corporate ladder, the rich are learning how to own the ladder. While the poor strive to find a good company to work for, the rich are looking for a company to buy. The main area that separates the rich from the poor is the very principle that separates them, assets and liabilities.

    By now you may be asking, “What is the secret of the rich?” Very simply put, knowing the difference between assets and liabilities is all there is to it. Confusion hits when your banker will tell you that your house, car, and everything else of value is an asset. A rich man will tell you that everything I just listed is a liability. To help you understand the difference, I will define both terms from a rich man’s perspective. An asset is anything that puts money into your pocket. A liability is anything that takes money out of your pocket. To make it even more effortless, think of it this way. If you quit working today, assets will feed you; liabilities will eat you. Therefore, if you are living in your home, it is a liability. Then again, if you rented it out, that same property would then become an asset.
Many affluent people start by working for a wage to fund there endeavor. With few exceptions, the affluent make there money in business, and then hold their wealth in real estate. The only step that is concrete is to buy assets to pay for your liabilities. For example, if you wanted to buy a new car, you wouldn’t shell out two hundred dollars per month out of your pocket. You would buy a house (no or low money down) to fix up. Then you would rent it out for enough to cover the mortgage payment, and your new car! You might be thinking to yourself, “There has to be more to getting rich than that.” I assure you that what I have outlined is the “Magic Formula” behind every self-made millionaire, and most get rich quick courses for that matter.

            In closing, I must mention that I am not suggesting that people should not go to school. Quite the contrary, I believe education is very important. I am only suggesting that people do not get the financial education they need in any classroom. In my opinion, it is a shame that children graduate without knowing how to read a balance sheet, or read in general in some cases. Also, the term, “rich’, has nothing to do with the measure of ones wealth. Rich is a mindset, not a status. Keep in mind that broke is temporary, and poor is eternal. Your education, dedication, discipline, and drive, are the only factors that limit you. Every morning that you wake up, you make the choice to be rich or poor.