1 A financial statement is not rocket science.
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All a person has to do is ask, Is this taking money from my pocket? If it is, its a liability.If its putting money into your pocket, its an asset.A Warning for the FutureIn Rich Dad Poor Dad, first published in 1997, I wrote, Your house is not an asset. My friends who are real estate agents stopped sending me Christmas cards.Ten years later, in 2007, millions began to find out the hard way that their house was not an asset.Millions learned another important word in the language of money, the word foreclosure.I am not saying, Dont buy a house. I am simply saying, Do not call a liability an asset. The reason the world is in crisis today is because our leaders continue to call liabilities assets.If those assets were really assets, they would not be in trouble.They would not need relief.The real problem was that those assets were actually liabilities.Like my poor dad, most people focus on a paycheck in the income statement.On top of that, they call their personal residence an asset.No wonder we have a global financial crisis.Rich dads definition of assets applies to anything, not just real estate.Businesses, stocks, bonds, gold, and even human beings can be classified as assets or liabilities.Anything that takes money from your pocket is a liability.Anything that puts money in your pocket is an asset.Assets cannot exist without liabilities.Remember that there are always two sides to every coin.For example, if you take the time to write down your monthly expenses, you will see where your cash is flowing into someone elses asset column.If your home has a mortgage, your mortgage payment is your liability.If you stop paying on your mortgage, your bankers asset turns into his liability.Knowing this is key.Assets becoming liabilities is a major factor of the global financial crisis.The reason banks needed bailout money was simply because people had stopped paying the banks.The banks assets have become the banks liabilities.Since many of our leaders do not know the difference between assets and liabilities, it is important that you do.During this window a child learns by taking risks without fully understanding the consequences.Young people often learn the hard way about the consequences of their actions.It seems our banking and political leaders are learning the hard way, too.The problem is that we, the taxpayers, foot the bill for the consequences of their financial ignorance.In the language of money, when an individual fails to pay on their mortgage, it is called a foreclosure.When a country cannot make the payments on its debt, it is called a default.Different words, with the same meaning, and defining the same problem.When people got angry with subprime borrowers for buying homes they could not afford, they should have been even angrier with our subprime leaders for borrowing money they, too, can never pay back.This is why financial education needs to be taught at an early age.Three Financial ClassesWhen a banker looks at a persons financial statement, it is easy to see which of the three financial classes the person fits in.Generally, they have no assets and no liabilities.Most of the poor rent and use public transportation.This class tends to live at the survival level.They live paycheck to paycheck, if they have a paycheck.The middle class earns more money but, generally, has more expenses and liabilities.The answer is simple.Your retirement plan is an unfunded or underfunded liability, that actually takes money out of your pocket.There are three problems with most retirement plans.Due to market fluctuations and inflation, your may never know how much money you really have.You never really know how long you will live.You never really know how much money you will need.Obviously, many of the rich have jobs, expenses, and liabilities.But I intentionally left salary from a job and the expenses and liabilities columns blank in order to emphasize the difference between the rich, the poor, and the middle class.The point I want to make is that the rich focus on the power of their asset column.The middle class, by and large, have few assets and many liabilities.The truly poor have no idea what assets and liabilities are.Notice the highlighted lines in the income column.Those lines represent the income from assets in the asset column.A players financial intelligence increases the more the players mind recognizes the power of the balance sheet.The more you play the game, the more you realize why your banker does not care if you were an A student, B student, or a college dropout like Steve Jobs, Bill Gates, or Mark Zuckerberg.If you know how to harness the power of the balance sheetIf you know the difference between assets and liabilitiesHow many assets you really ownHow much money your assets are putting in your pocketIf you can teach your child what your banker wants to know, then you have given your child a massive financial headstart in life.Action Step for ParentsDiscuss why bankers do not ask for your report card.Talk about school report cards and what they measure and represent.Then discuss the types of reporting related to money and finance.They communicate how a person is doing in terms of managing their financial life.If a person is seeking a business loan or financing for an investment property, a banker will ask for a financial statement.It shows a banker your financial strength and the level of your financial education and that is important information to a banker.Its a great tool to reinforce new vocabulary words and the concepts of income and expenses and assets and liabilities.Thats one point of view.Certainly there is another side to this coin.The more people I serve, the more effective I become.From my point of view, thats not greed.Its ambition and drive.His pension was reduced from $45,073 per month, or $540,000 year, to just $9,644 a month or approximately $115,000 per year.Elder AbuseBruce Malkenhorst also claims that denying him an additional $60,000 a year for golf fees and massages is another example of elder abuse.His justification for his high retirement pay and fringe benefits, such as regular massages and free golf is, Im from an era where you made as much as you could for as long as you could.This sounds like greed to me.Malkenhorst is not an isolated example.The city where he was making as much as he could for as long as he could is the tiny industrial town of Vernon, near Los Angeles, with a population of just 100 people.Six other government officials of Vernon are also under investigation.In the end, Bruce Malkenhorst was fined $10,000 and ordered to pay back $60,000 in green fees.It seems that government workers protect their own.A person does not have to be rich or a capitalist to be greedy.One definition of greed is, wanting more than you are willing to give.When a mutual fund takes 80% of their clients gains, that is greedy.When a politician does favors for special interest groups that can benefit the politician, that is greedy.When a worker expects to be paid for more than they produce, that is greed.When an employer cheats an employee, the employer is greedy.There are as many greedy poor people as greedy rich people.It seems to me that greed knows no boundaries, class or otherwise.Americas New Civil War