WHEN IT COMES TO UNDERSTANDING OUR FINANCIAL SITUATION, NOTHING IS MORE POWERFUL THAN THE IDEA OF CASHFLOW.
Seeing the flow of our money helps us realise how our decisions and our approach to life influence our finances.
So if you want to know how to become rich. If you want to understand what the rich do and how the rich think. If you want to understand the process of becoming rich and wealth. Then understanding the cashflow patterns is very important.
Read on to understand the different cashflow patterns so that you too can start thinking and acting like the rich do.
Robert Kiyosaki spoke about cashflow patterns in his book Rich Dad Poor Dad. Simply put they are the patterns that form when you track the movement of your cash from one part of your financial statement to the other.
There are three types of cashflow patterns – of the poor, the middle class and the rich.
Let’s take a closer look at each of these.
NOTE: Here Poor, Middle Class, and Rich refers to the mindset. So you may be making a lot of money but if you are also spending all that money, you have the cashflow pattern of the poor.
The cashflow pattern of the poor is quite straightforward.
It is simply money in and money out.
For the poor, all the money that is earned is spent on expenses. They have no liabilities, but along with no liabilities, they also have no assets. Now, they don’t have to be making less money. They could be making a lot of money. But if all that money is spent on expenses, they have a poor persons cashflow pattern.
THE MIDDLE CLASS:
The cashflow pattern of the middle class flows in from the income column but unlike the poor, the middle class have debt.
These liabilities are taken to acquire things that they think are assets but are actually liabilities. A big house, cars, boats, jewellery, things that have value but create no income.
In fact, a lot of times, the middle class takes on debt through credit cards to pay for their expenses. They want to look good in front of others and land up spending more than they can afford. This is the great middle class trap. From the outside, everything looks fine. But in the inside a storm is brewing which if not corrected can lead to financial ruin.
There is stark contrast in the cashflow pattern of the rich. The rich don’t think differently, they think oppositely. The cashflow pattern of the rich starts in the asset column. The rich create assets that pay for their expenses. They don’t depend on an income.
They spend all their time and effort in acquiring real assets that create income for them. And if there is anything left over, it goes towards creating new assets.
The rich use liabilities as leverage to get higher returns from their investments. But they watch their finances very closely.
The rich know that they don’t have all the answers, so besides using other people’s money, debt, they also use other people’s time. That is they hire teams of experts. Unlike the poor and the middle class who want to do it all by themselves to save time, the rich hire experts to do it for them.
So, in order to get wealthy, you have to start thinking like the rich. Have a look at your cashflow pattern. What kind of cashflow do you have? Identify the disguised assets and start building real assets.