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Words have power
Words are a pivot point between thoughts and actions, the proper usage can have a surprisingly profound impact on obtaining wealth. Vocabulary of the rich people can help you undestand, how rich people achieve their financial freedom. I would like to start this post with the quote:
“Your beliefs become your thoughts,
Your thoughts become your words,
Your words become your actions,
Your actions become your habits,
Your habits become your values,
Your values become your destiny.”
― Mahatma Gandhi
Words can impact – or even change your life! I’ve found a great example for that idea in “The Millionaire’s Secrets” book by Mark Fisher. John Blake (main character) visits the rich man just to learn, how to become successful copywriter. After spending some time talking, he went into his room. Suddenly, the door were locked from outside. John saw a printer on the desk. The device started print a message like, “you have only one hour of life left” (Polish translation can be a little bit different than original). He looked outside and saw a man in black uniform and hat. Next, he heard footsteps. He was so scared, he just panicked. He knew he had his final minutes of life… and he couldn’t do nothing to defend himself. The doors were opened. The person with black uniform turns to be a Millionaire. He enters Blake’s room with smile, and explained him the power of words – how simple sentence can (in an instant) impact our life.
This example shows how much our mood and behaviors rely on words. When you start using different vocabulary, everything changes. Your inner voice often speaks, that something is not achievable. Your voice leads to procrastination (check Pain Pleasure Principle post I wrote for more info). Even on toughest times, someone can cheer you up using just one word. After the argue, sometimes a simple “I’m sorry” changes everything. It is the same when it comes to your work, relationships or money.
The New Vocabulary
Words represent knowledge. Knowing the meaning of words is crucial to achieve your goals. You need to create a personal environment to learn.
Success in a certain venture begins with increasing financial vocabulary in that subject. For example: a professional boxer. Before the fight, he changes his environment. He puts posters on the wall with legends of the sport. Boxing gym become his home. He listen motivational speaking to concentrate about winning and uses new words for certain moves. His attitude changes from “I can’t” to “I can”. The most successful people are the people who never give up.
Words can kill or cure. On the business side – doctors learn the vocabulary of medicine, lawyers learn the vocabulary of law and teachers learn the vocabulary of education. Depends how much you know and what you’ve learned so far, shapes us to learn and use different words to describe certain situations.
Vocabulary of the rich people is important when it comes to money. Unfortunately school taught us nothing about investing, finance, money, accounting, corporate law, and taxation. You should learn everything by yourself through games and apps, books, seminars, classes, and coaching. You can find a lot of great information on FinancialGoal.eu also.
You need to understand, how your process of money earning and spending look like. You must know, your incomes, expenses and cash flow. You should have ideas, what to do with money to multiply income. The terms, like: assets, liabilities and cash flow should be in your new vocabulary of the rich. When you understand the words, it will be easier to find the correlations between money in vs money out. You will know then, how to create your own money wealth strategy.
Please remember that words shapes our destiny. If you talk to yourself “I’ll never be rich.”, you probably won’t. It’s important to have a group of friends who are enthusiastic about life and don’t create obstacles. For example: if you have a closest friend or family who often said “Don’t fool yourself. You’ve never be rich”, this can be true. You need to stay out from this distractions. To achieve your financial goal you need to have one.
Want Wealth? Change Your Mindset
Another perfect example that covers the power of words is in a book Rich Dad Poor Dad written by Robert Kiyosaki. For me, this book was a milestone in my path to financial freedom. In Rich Dad Poor Dad, author writes why vocabulary of the rich people is important when it comes to money. He also writes about rich people’s mindset and how to get better results, just by changing point of view. The difference between those who are rich and those who are poor is their financial vocabulary.
When you ask a poor person how to be rich – he will tell you: “live below your means, save as much as you can, buy the things you only need right now”. Asking the same question to famous, successful and wealthy people, you’ll get totally different answers. They know vocabulary of the rich people, so the answers will be like: “live your passion and achieve your dreams, don’t save money too much, buy assets”. Here’s to your education and success!
“If you want to see a person’s past, present, and future, just listen to his or her words.” – Rich dad
Let’s rework our lexicon. As Tony Robbins speaks – everlasting change can be done in a second. Just follow the pattern and use different words.
Change “I want to be debt-free.” to “I want to be financially-free.”
Change “I cannot afford it” to “how can I afford it?”
Change “Live below your means.” to “Expand your means.”
Change “It takes money to make money.” to “It takes time to make money.”
Change “I must work hard for money.” to “I must make other people’s money work hard for me.”
Change “Compound Interest is magical.” to “Leverage is magical.”
Change “Let’s build a Budget and stick to it.” to “Let’s make a Cash Flow Statement!”
“A rich man digs for gold, while a poor man is concerned with the cost of a shovel.” – R. Kiyosaki
About 10 years ago, when I had start gaining experience in finances I’ve discovered, that changing the mindset can actually gives more opportunities. It’s the Law of Attraction (The Secret Book by Rhonda Byrne). I’ve decided to dig a little deeper. I’ve bought a real estate for rent and started to invest in stock market. Then I choose a different path to study. From IT industry I’ve chosen finances and accounting. I’ve never regret that path. Right now I have a good knowledge and experience in business. I made some successful brands and I’m building at least one business every year, to generate passive income. I know the more experience I made today, the most profit I’ll receive in the future. Everything takes time and determination.
Vocabulary of the Rich
It’s crucial to understand financial literacy – basic financial concepts like accounting, investing, and the laws surrounding taxes, corporations, and money in general. To achieve financial independence you need to know the words used by rich people. This are the basics of finances, we all need to learn. Fortunately, the terminology is understandable and easy to use at the daili basis. This topics are:
- Financial Statement
- Cash flow
- Types of income
Note: To learn more about the words please download my FG Balance Sheet (to use real examples). This is the tool to plan your financial future. It covers all topics presented in this post. I present you a non-accounting approach to the subjects. These Words are simplified specially to be understandable for everyone. The same words are uses in businesses, but the meaning of each word is more complex. Companies have more control over the money (controlling, tax law). Let’s dive a little deeper into the meaning of each word:
Financial Statement is the type of statement which covers all your incomes and expenses. This is an accountant method to track your finances. You can check here, what amount of money you earn during a certain period of time (income), and where you spend it.
Advice for FG Balance Sheet:
It is very important to fill this statement list as precise as possible. Try to add every money you’ve earned or spent. It’s good to add your incomes and expenses at least once a week into the sheet. The best way is to add your expenses daily (it will take you maybe 5-10 minutes a day). If you don’t have certain income or expense, put zero (“0”) in the cell. If you don’t have a passive or leveraged income – don’t worry. You will build it slowly. Don’t try to add some informations you don’t have into fields. Try to add the most precise data you have. This is important in annual financial statement – months are summarized there. The more precise data you add, the more precise would be your statistics. In another way: GIGO (Garbage in – Garbage out).
Investopedia covers income as: “money that an individual or business receives in exchange for providing a good or service or through investing capital. Income is consumed to fuel day-to-day expenditures.”. To simplify – income is the money you receive.
- Active income
- Passive income
- Leveraged income
- Windfall income
1. Active income (linear income)
Active income is a type of income generated when you are always actively involved with. Every time you need to do something yourself to generate income – you use linear form. This income is generated by working being an employee or self-employed, no matter how high you are on corporate ladder. This income can be paid immediately or in a certain (often constant) amount of time (weekly, daily, monthly).
- Working a job.
- Be a self-employed.
- Doing all sort of activities that are based on time/effort spent.
2. Passive income (residual income)
This is the most important type of income you’ll need to focus on. It’s the type of income rich people build as a priority. A lot of people don’t know about passive income, that’s why they have often tough financial situation. Passive income is a type of income, where you receive income, when you are not actively involved with the job. In other words: you do the work once and you get paid repeatedly for doing the work. You earn money even when you sleep! Passive income comes always from different sources – from assets you have created or purchased.
„He who works all day, has no time to make money.” – John D. Rockefeller
On Financial Goal site I teach about passive income. This type of income is the most important factor when it comes to wealth and financial independence. If you want to be wealthy – follow and apply the rule:
Passive IncomeThe Goal is to create Passive Income. This is the only way for financial independence. You can find examples below. Take a tour with me. > Living Expenses
When your PASSIVE INCOME will becomes greater than your monthly LIVING EXPENSES, you will be financially free.
- Real estates rental income from investment properties,
- Business income (that is not from earned income),
- Investing and savings as well as.
- Affiliate and network marketing (you sell someone’s else products).
- Royalty fees.
- Creating successful brands.
- Creating virtual assets, like writing eBook, blogging, Podcasting etc.
Leveraged income is where you earn money using other people’s effort. You can use their time, money or both. You will use leverage to earn more money. This income is generated when you have people who sells your stuff and gets a reward for doing that (10% to 50%), or you are a reseller.
I would rather earn 1% of 100 peoples efforts than 100% of my own efforts. – J. Paul Getty
- Start a referral or affiliate program for a product that you created.
- Create products and sell them online.
- Affiliate and network marketing (you sell your own products to marketers).
- Own intellectual property or brand.
- Invest in Real Estate.
- Join a Network Marketing Business or Franchise system.
Windfall income (Windfall Gains / Profits)
Windfall income It is a type of income that occur unexpectedly due to fortuitous circumstances.It can be a huge price spike of your product, winning some extra money or just a perfect occasion to sell your assets. This type of income can be either temporary or may be longer lasting.
Windfall income is a type of income you cannot predict for sure. Sometimes the amount of income is random.
- Winning a lottery
- Receive money from your parents / friends / family
- Income from stock market (buy and hold method – sell when the price is high)
- Selling your supply storage after price spike
- Contributions and donations
- Selling your real estate.
We all have expenses. Some of them are constant – like bills, education, your expenditures on children etc. We all make unplanned expenses every month (especially food and drinks). Most of us don’t even know where the money goes. Do you remember what did you buy last month? I’m sure you are not aware of every expense you make every month… but you should.
NET is calculated by subtracting expenses from income. NET value is important to check your cash flow. When your income is greater than expenses – you will earn money in a certain period of time (which is good), and your cash flow is positive.
Balance Sheet is a statement that covers all your assets and liabilities. You will find here information, what gives you money and what takes you money on the certain time period.
The simplest (not accounting) definition of asset is: everything that puts money into your pocket. Assets are what the rich use to generate wealth over time. I listed the most common: savings, stocks/ mutual / CD, real estate, businesses that don’t require you to work at them. The other way to call assets: a thing when you sell, you will receive more money you put to buy this thing.
The simplest (not accounting) definition of liability is: everything takes money out of your pocket. I listed the most common: home mortgage, all types of loans, retail Debt, business liability, software cost. The other way to call liabilities: the sources for financing assets.
This is one of the most important topics. You need to understand it well. We can define cash flow as the net amount of money being transferred into and out of a business, especially as affecting liquidity. Positive cash flow indicates that we are going
The movement of money from a business, asset, or financial endeavor. Cash flow can refer to money coming into or out of a business.
Other important words:
- Cap rate.
- Financial leverage.
- Producer price index.
- Cash flow.
- Network Marketing.
- Financial literacy.
- Financial IQ.
- Rat Race.
- Supply and demand.