Creating Wealth – When Was Your Last Financial Checkup?
The importance of getting a regular financial checkup and how it relates to creating wealth
Creating wealth, like any other important or critical part of life, requires check ups. Just like you schedule regular visits to your doctor or dentist for a checkup on your health, it is just as important to schedule regular checkups for your financial health as well.
In comparison, thinking you can just look at yourself in the mirror each day to assess your level of health is like looking at how much stuff (aka doodads) you’ve accumulated to tell you how well you’re doing financially – it doesn’t tell you much. Regarding your health, you could be chronically ill but have jolted your body with so many stimulants and pills that you may actually think you are healthy enough. Financially, this equates to someone enjoying the comforts of a lavish lifestyle, with the appearance of success on the outside, yet in reality they could be living paycheck to paycheck or worse financing their lavish lifestyle with credit cards and loans, maybe only days away from losing it all.
Again in both situations, the casual, surface glance can be deceiving. Not until you take a closer, more thorough and accurate look can you know for sure. You need actual measurements, real numbers; for health – weight, body fat percentage, BMI, pulse, cholesterol count, white blood cell count, etc; for finances – amount of income, expenses, assets, liabilities, DTI (debt to income ratio), etc. The numbers tell the story, the numbers don’t lie. This applies to both health as well as finances and is as critically important for maintaining good health as it is for creating wealth.
Once You Leave School, Your Financial Statement Is Your Report Card (For Creating Wealth)
In school, your progress was measured with a report card. You could not continue on or move forward on to the next grade if you failed to make enough progress. Your teachers tracked and measured the success of your school work and activities regularly throughout the year and sent home progress reports and report cards. But what most people don’t realize is that once you leave school, your financial statement becomes your report card. It reveals or keeps track of how you’re progressing or doing in life financially.
For businesses (C-corporations for example), the tax code requires an annual financial statement each year: updated profit & loss statements and balance sheet, etc. But for the average person, there is no mandatory filing requirement (ie, regular checkup) and therefore most people are not even aware of their financial statement, the importance of a financial statement, or what a financial statement even is! It is not something you are sent in the mail or that the government or your employer or anyone else keeps track of for you (unless you’re working with a financial planner maybe).
Your banker however, will ask to see your financial statement in order to assess your level of financial intelligence or the amount of risk they perceive you to be. Your banker will want to determine your creditworthiness, he will want to examine your track record for how responsible and smart you are with your money. He will want to see over the years how successful you have been financially. The better your financial report card looks, the faster you can move ahead, the more good debt you’ll be trusted with and able to borrow, the more favorable terms you’ll receive, and the wealthier you’ll become. (And while your banker may not ask you for it by name – they know most people wouldn’t know what a financial statement is – your banker will ask you to provide all the information needed to compile a financial statement, like income, assets, liabilities, outstanding debt, etc and will compile it themselves, which you don’t normally get to see).
This lack of financial education is a major cause for all the debt and financial crises we hear about today, especially when you consider the incredible financial boom we had for so many years prior to this recession, where so many people made so much money, you would think they would be setup or better prepared to handle a downturn in the markets and the economy. This just goes to show that income does not equal wealth; it’s not how much you make that creates wealth, it’s how much you keep. And as we know during that period, the average savings rate for the country not only dropped to zero, it actually went negative – that is NOT a sign of creating wealth, but rather of speculation and gambling. This leads me to my next point…
The Education You’re Not Getting Is Costing You The Most Money
There are 3 important types of education:
- The first type of education is a very important and basic education necessary for survival today called Scholastic Education. Scholastic education which is taught in elementary, middle and high schools teaches students how to read, write, do arithmetic, etc.
- The second type of education is a Professional or specialized Education. This education is necessary for professional success to learn the skills taught at a University, Business school, trade school, medical school, law school, etc to become a doctor, engineer, lawyer, professor, etc.
- But it’s the 3rd type of education that most people are not getting which is costing them the most money and that’s Financial Education (money managing skills like how to balance a checkbook; understanding basic accounting principles, to distinguish (and be able to define) assets from liabilities, good debt from bad debt, linear income from passive income, etc). This education unfortunately is not really taught in schools (they don’t even teach simple personal finance skills like how to balance a checkbook); most people learn their financial skills either by trial and error (an expensive and often painful way to learn) or from what money skills they picked up from their parents, most of whom have bad money habits themselves (because they never learned, and so the cycle perpetuates). In fact to make matters worse, many college students learn their (bad) money habits from all the credit card offers and incentives they receive on campus, enticing them to sign up for and use credit cards for bad debt – I should know, I’m speaking from personal experience on this one!
(Side note: this is another difference that distinguishes the wealthy from everyone else – they do pass down these critical skills and lessons about money and finance to their kids. Is it any wonder why the rich get richer?)
Too many people are never taught this when they leave school and have no idea what a financial statement even is and usually only come to realize it’s importance when it’s too late in life, when they want to stop working but can’t afford to, once they’ve lost their job, lost their retirement, etc. And unfortunately, they have to learn the hard way usually because their financial statement is in bad shape!
…Maybe they had an above average income but still found themselves living paycheck to paycheck instead of learning to pay themselves first. Perhaps they had thought they were doing the right thing by setting aside some of their money but handed it over to a mutual fund, thinking they were being wise with their money (actually they were just being sold – after inflation, fees and taxes, even well-performing mutual funds will lose you money). Maybe their house was worth over a million dollars and so they thought it was an asset until the market crashed and they could no longer pull money out of it to fund their unaffordable lifestyle (a real asset puts money in your pocket every month; liabilities take money out of your pocket each month – therefore by this simple definition, your house is a liability, NOT an asset).
Many people simply take their finances for granted, only thinking about today, not planning for tomorrow. They think that if they could only make MORE money, that that in itself would solve their money problems. But that is not true. More money will simply amplify or multiply whatever financial problems currently exist. Just of think of all the athletes, singers or lottery winners who all of a sudden were “in the money” and yet not long after they’re broke again and usually even worse off than they were before they had money (from acquiring even more debt). As stated before, it’s not about how much you make that determines your ability for creating wealth, but rather how much you keep that is important.
So because most people are out of the habit of having their financial report card checked regularly like they used to it school, they are not fully aware of or able to see their financial mistakes and therefore cannot make the corrections necessary to lead to a financially secure life. Without having accurate data, without knowing what the numbers are you cannot see the story the numbers are trying to tell you. These people have missed out on years, perhaps even decades of the compounding formula working for them and instead come to find out that in fact it has actually been working AGAINST them. Most people also don’t realize that this compounding formula either works for you or against you, it doesn’t just sit still. (Just like your waistline or mid-section is a result of your health and fitness activity or actions compounded over time – good or bad – the same can be said about your finances.)
And ironically, contrary to what you may think, those who did well in school usually have poor to average financial grades in life…
So if your goal is creating wealth, what should you do?
Step 1 is to figure out where you’re at. You need to look at your financial report card by creating a financial statement that lists your income and expenses, assets and liabilities. Just like a map: you must first know where you are (find the YOU ARE HERE pointer) before you can know how to get there, let alone actually getting there.
Get a free copy of a financial statement that you can fill out to find out your financial starting point
Step 2 is to regularly track and check your financial progress – become aware of how and where your money comes and goes, learn your money patterns and behaviors – what trends do you see forming? What direction are you headed in the future if you continue to earn and spend the way you have been?
Another reason for getting actual numbers and accurate measurements is because what gets measured gets done. In other words, wherever your focus is, your energy will go and you will see increased activity and results there. So get tracking!
Step 3 is you have to know where you want to be financially. Create a second financial statement to set your goals for the future: how much income do you want to make? How many assets do you want? How much cash flow do you want your assets to throw off? What do you want your debt to income and debt to equity ratios to look like? How much bad debt do you want to have gotten rid of and how much good debt do you want to have acquired?
Step 4 is to begin moving forward toward your financial goals by implementing the right mindset and money habits to attract money into your life, to learn the financial behaviors that will appear to attract wealth to you. Start this process by paying yourself first – prove to yourself that you are in control of your finances and money, that money is not controlling you (because of fear!). Pay yourself first to increase your self confidence & build your self image, to give you power over money, to become it’s master.
Step 5 is to increase your financial I.Q. by increasing your financial education through constant self education. Commit to the process of creating wealth, commit to financial lifelong success. By far this will be the best return on investment you’ll ever make – infinite returns compounding exponentially over time. Money will come and go – just look at Donald trump. He went from billionaire to almost $1 billion in debt then because he had mastered these financial skills for creating wealth was able to bounce back and become even more successful as a multi-billionaire because these skills once learned can’t be taken away from you, they become a permanent asset.
If you are someone serious about success and creating wealth, I highly recommend a game by Robert Kiyosaki called Cash Flow 101. As humans, we learn best through simulation and hands on experience. This board game will help you develop the correct money habits and behaviors and provide you with the right mindset to begin to literally attract wealth.
The first time I played this game more than a decade ago it seriously altered the direction of my life. After playing the game a few times, I began to finally “get” it. I had read many books and gone to several seminars prior to that point in my life and KNEW the strategies and ideas THEORETICALLY. But when I played them out in that game, it went from my head to my heart so-to-speak. I bought the game and have played it countless times since. Better than any book or seminar, it gets you INVOLVED in the process.
I highly suggest you get a copy of this game if you are serious about creating wealth. Invite some friends and colleagues around to play and watch your finances and wealth as a group climb upwards as if by magic. I can’t recommend this game enough. See for yourself by clicking on the following link: Cash flow 101 board game
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IT’A GOOD NEWS,THANKS FOR SHARING
I agree that being financially ‘educated’ as you say is very important. I’m going to check that game out. Thanks for the great tips!
Your welcome Karen, I highly recommend it!
Wow, this article is packed full!
My financial education is limited to say the least! I deal with cash and nothing else! Spend as much as is necessary (treats and fun I count as necessary!) but no more! Make as much as you can and save as much as you can!
I love the step by step to do’s that you lay out here and certainly learned a lot!
Thanks for the feedback Emma!
Financial education wow? I never thought about it that way. My main focus was seeking a professional or specialized education and then get married or something. Nice article, I found it very informative. Thanks.
Lol, that’s what we’re taught. You might like another article I wrote: “Creating Wealth – When was Your Last Financial Checkup?” Thanks for your comments Anthony!
I really like your financial tips! I read Rich Dad Poor Dad for the first time last week and it inspired me to become better educated in my finances. I’m glad I came across your website and I’ll look forward to more from you! Take care.
Kyle, that’s a great book, a real eye-opener for a lot of people. As Kiyosaki says, the rich do not only do things different than everyone else, in fact they do the opposite. The rich think differently, they talk differently and they act differently. Financial Education is the key! Thanks for your comments Kyle!
You are so right about the lack of financial education that most people receive. That’s one of my pet peeves of our education system. It used to be more common that women didn’t delve into the financial side of life however, I know a number of grown ups (men and women alike) these days who were never given any education on budgeting much less investing. It’s no wonder we’ve created such a mess. Thanks for doing your part.
Hey Linnea, thanks for your comments. That’s exactly what’s got us here. This is also the same reason why most people do not have any gold or silver either – they do not know that gold and silver is real money. They falsely believe that gold and silver are the next bubbles. Many people also misunderstand what inflation and deflation are (increases and decreases of the money supply, not asset prices), what creates wealth (it isn’t by spending more), and who or what the Federal Reserve is (it’s not federal and they have no reserve). Most people go their entire lives never understanding any of this, let alone why the system is designed and functions the way it does (The Other Golden Rule). It’s no wonder the rich get richer and the poor get poorer. It all comes down to financial education in the end. Thanks again Linnea!
Some no nonsense tips! So many people have the mind set of wanting things now, and I do mean NOW. This will just lead them into a never ending cycle. I too lived like that not really thinking about my spending habits. Your post and your site gives so much good information about finances. The school today should go to sites like yours to educate students about money. I think students are not educated in the ways of money. So many of them can’t even count change, eventhough the computer does it for them.
Hey Joyce, that is a good point. All this technology today is great, it can make it even easier, simpler and faster to arrive at a solution. But if you rely exclusively on your phone, your computer, etc and lack the skills to figure out a simple math problem for example, you’re in trouble! You better know how to add, subtract, multiply and divide otherwise a small simple problem can quickly amplify or multiply into a big problem fast! This is why understanding the basics is so important. You don’t have to do it all yourself, but you better have a good understanding of how it works or expect to get taken advantage of. This is how our government operates and the federal reserve. They are able to create money out of thin air, inflate the money supply, devalue our “money” and yet tell us they’re not doing it. And most people believe them…
This is a great article! It’s true, in today’s society you need an education. College is almost the new highschool and if you don’t keep up, you might find yourself working the local burger joint for the rest of your days. The old saying holds true, “hard work pays off.” My advice: work harder.
Hey Uri, I’d agree that working is definitely part of the equation. But working harder following the wrong plan won’t help either! With the right plan in place based on a sound financial education – working to develop assets as opposed to landing that safe, secure job – you’re miles ahead of the masses and can work smarter instead of hard – even better! Thanks for your comment.
Donna, not to be cynical but if the majority of us were financially educated, there would be a revolution! Or rather, this state of affairs we have today would never have occurred in the first place.
We wouldn’t have a fed who charges us interest for printing our own money, we wouldn’t have these crazy boom and bust cycles that result in many, many foreclosures and bankruptcies, the corresponding bailouts, budget deficits, rises in taxes and inflation, etc. Basically, the system is designed to contain the many, to maintain the status quo. That is why it is up to the individual to break away from the masses and take control of their financial future or end up like the masses.
Thanks for your comments Donna!
Hans, This is an inspiring post for me. Often times I think of why isn’t the most important types of financial training isn’t taught in schools. It has me scratching my head so to speak. This post needs to be taught to Everyone! I’ve run into people in my business that are looking at their financial goals like they were 20 years ago. I am not a financial person, but have enough common sense to see the world and how it has changed.
I try to keep up on what’s going on and have transferred my assets into different places.
This post has inspired me so much that I want to share it with all my clients who are at a stand still. Thank you for the awareness you have given people in this post.
Regular financial check-up as a way out of social distress is not simply a matter that can be wished away by anyone that likes to live a happy economic life these days of global economic dilemma.
This is really great information! Most of my life I’ve been up to my eyeballs with budgets managing multi-million dollar sales and marketing departments – which unfortunately meant when it came to my own finances I gave my self the short end of the stick. Working on changing that now so this is well timed for me personally. Thanks.
Marquita, glad my article could help! Like someone once said, learning is remembering. It’s a simple concept, something we do in other areas of our lives, yet when it comes to finances, we have been taught/conditioned/educated/whatever to just hand money over to someone else and hope and pray it goes way up. I believe this is what has led to the recent financial crises the world is going through. More people need to do what you are doing and begin taking control of their financial situation. The first step is awareness, and often for most people the most awakening! Congratulations and thanks again for you comment!