When it comes to the issue of personal financial intelligence, there are 4 basic factors that you must embrace, be familiar with and know, if not, earning all of the money in the world won’t make any difference in the long run. Understand that earning huge is good, but it doesn’t guarantee financial freedom for you. Freedom is not just a function of what you earn, it is a combination of these four critical factors and how you organize your life around it.
1. INCOME – this is money generated in exchange for value. Every money or multiplication of money you experience is tied to some sort of value you have delivered. Either in providing a service like teaching, or selling a product like cakes, or selling recharge cards to friends and family, or working efficiently at a job, etc. Money you receive in exchange for a good or service delivered is called income.
2 EXPENSES – this is money spent on things you desire, like house rent, books, movie tickets, game consoles, clothes, vacations, shoes, etc. So on the other end of someone generating income, is someone generating expenses. Take note of this.
3. LIABILITY – this is anything of value that takes away money from you regularly, like paying a debt weekly or monthly, servicing a bank loan, personal house and car maintenance, cable TV payment, etc
4. ASSETS – these are things of value that regularly delivers money to you. For example a house you receive rent on, a car you lease out for cab business, a land where farmers farm and pay you monthly for leasing it to them, a laptop or game console that you rent to your friends to enjoy, etc.
For someone who wants to be financially free, who doesn’t want a bleak financial future, you need to sit down now and do two things:
1) Take a piece of paper and ask yourself, ‘where am I?’; then write these 4 factors down and write where you are right now. If you don’t know where you are, you can’t be helped to where you want to go. So in a month, what is your income? What do you expend money on? What assets and liabilities do you possess?
2) After the first exercise, then ask yourself ‘where do I want to be?’. On the same piece of paper, craft a future, a near future. What do you want to earn monthly in the next 12months? What income, expenses, assets and liabilities do you want to reflect on your personal balance sheet?
I will love to see your dream plan. Use the comment box, or send it to me at yomadxu@gmail.com and let us review together.
