How to Expedite the Creating Wealth Process
Creating wealth is not just about making money (see my previous post: You Don’t Have To Be A Millionaire To Be Wealthy). Creating wealth requires one to examine their own financial statement to understand the relationship between their assets and liabilities, their income and expenses.
Primarily, creating wealth is achieved by developing more passive or residual income (income that you no longer have to work or be present for to receive it) than you have expenses. So while most people are focused almost exclusively on increasing their passive income it’s also important to examine your expenses which could shortcut or speed up the time frame for you to become financially free.
This is best illustrated with Robert Kiyosaki’s Cash Flow 101 game (which I highly recommend if you’ve never played it or even heard of it before. Essentially, the next best way to learn something apart from actually doing it is through simulation, ie, games. This is one of the most effective ways to learn something, ie, learn the money patterns, attitudes, skills, and beliefs necessary for creating wealth, since most of us were never taught about these things. Books are great, audios too, and of course seminars – but simulating real life through games is much, much more effective. This game is so important and powerful that best selling author Robert Kiyosaki wrote 3+ best selling books – Rich Dad, Poor Dad; Cashflow Quadrant; RichDad’s Guide to Investing – specifically with the purpose to help people understand the importance of this game he spent years creating and perfecting….).
In the game Cash Flow 101 (you can purchase the board game now like I did over ten years ago when I was 20 to begin my creating wealth journey or sign up for my newsletter in the upper right corner of this page under the video to get free access to try it out and play the full-version game online), you are a rat in the “rat race” of life trying to somehow get ahead and break out of the rat race and into the “fast track” – where you finally get to live out your dreams and goals. You get to play the game by stepping into someone else’s shoes so-to-speak – you might be a doctor, a lawyer, a teacher, a policeman, a business owner, an airline pilot, etc. You not only receive their pay and any accumulated assets (most people don’t really own any assets though), but you also have to pay for their expenses, and carry their debt load.
You play the game like most people live their life: by running around the rat race month after month (dice-roll after dice-roll), chasing a paycheck to pay your bills and manage your debt and you have to choose how you want to react to opportunities that may get you ahead or put you further behind.
The only way out of the rat race however is to create enough passive income to exceed your expenses – that’s how you escape the rat race (both in the game and in real life) and move up to the “fast track” – the world of the wealthy.
Now going back, there are two ways to get out of rat race, either by increasing passive income or decreasing expenses. For most people, it may be much faster and easier to simply pay down debt and/or lower their expenses rather than accumulating or developing assets that produce passive income. However, the problem with this approach alone is that you cannot get out of the rat race by only cutting expenses – you also need to create passive income from either real estate investments, gas or oil wells, a dividend-paying stock portfolio, a residual income business, interest from notes, etc., because realistically you can only cut your expenses so far.
A good illustration is to take your annual amount of expenses and multiply that by 20 to get a figure of how much money you would need to have invested in order to have enough money coming in passively to pay for all your expenses without you having to work, with a net return on your money of 5% (as a side note, make sure to take into consideration taxes and inflation, etc when calculating your net return).
For example: $100,000/yr in expenses requires $2,000,000 invested producing a net annual return of 5% ($100,000). However, if you cut your expenses in half to $50,000, a 5% net return would only require an investment of $1,000,000, meaning you only need a one -million dollar cash-producing asset, and not two million dollars worth. But of course you can only cut expenses so low, but it’s important to understand what role they play in the process of creating wealth. (Keep in mind you will need an investment that will yield a much higher gross return – as inflation and taxes are likely to increase – to achieve a net return of 5%)
So really the key to creating wealth – both in the game Cash Flow 101 and in real life – is to not only create passive or residual income but to also reduce your expenses to reduce the amount of residual income you need in order to become financially free and infinitely wealthy (remember, wealth is measured in time, as in the number of months forward you can live without having to go back to work – see Creating wealth 101 article). This way you are working smarter to reach your goals faster by spending less of your time, energy and resources.
How can you both increase your passive income and reduce your expenses simultaneously?
There is one investment vehicle where you can both increase your passive income while also decreasing your expenses to help you arrive at your goal for creating wealth that much faster.
You can learn more about this investment vehicle instantly by simply entering your details in the form below:
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Wow – I had heard of Rich Dad, Poor Dad before but I had no idea that Cash Flow 101 is the same creator! Thanks for this post, I am glad I found it and will definitely check out this game.
Great points you make. I think that it is a confidence that people need to overcome themselves. I know I have had my negativity here and there. I also believe that this will help people be able to conquer that fear of failing or that fear of taking the risk or the next step.
Thanks for this very informative article about expediting wealth. There are so many excellent points you made that we do not think about. I know many people who create wealth, yet they do not know how to manage it.
This quote sums it up, “The only way out of the rat race however is to create enough passive income to exceed your expenses – that’s how you escape the rat race (both in the game and in real life) and move up to the “fast track” – the world of the wealthy.” It is all about income exceeding your expenses.
Also, this is about the 10th time I’ve heard about Robert Kiyosaki’s Cash Flow 101 game. I will seriously look into it. I love Robert Kiyosaki!
Hey Raena, you’ll like it, it’s a good game based on real life. The tag line on the board game box says” The more you play this game the richer you become”…
I bought a couple of the Rich Dad books but I never seem to be able to read them through to the end. I find them a bit repetitive so I tend to get bored and can’t finish them. I think I will give them a try again.
Hey Edmund, I felt the same way initially when I first read Rich Dad Poor Dad over ten years ago. But the lessons are so profound and important that they bear repeating. The lessons will get imprinted in your mind, and that’s a good thing. Something else you may try though is to listen to the audio version of some of his books. My library of his audios and books is approaching 20 books or mp3s. It’s good stuff, I highly recommend it if you’re goal is creating wealth! Thanks for stopping by Edmund!
AH! What a breath of fresh air this site is! Yea!! I feel at home, lol!
This is one of my fave topics! Well you could not have given better advice! Like you, I started studying Kiyosaki’s work many years ago. My life changed completely after I did!
The cashflow games are extremely educational and FUN!! I like being the mechanic because you get out of the rat race quicker, ha ha ha!
I also have cashflow for kids which was a great help in teaching the kiddos how money works at a young age. 🙂
Loved this post! I’ll be back to hang out here at your crib Hans!! 🙂
Lol, hey Roshanda – yes, it is funny playing Cash flow 101 with new people because they ALWAYS want to be the highest paid employee, not knowing they usually also have the highest expenses, making it the MOST difficult to get OUT OF the rat race, of course. But when people get that, then it really becomes fun. Then you know a shift has taken place – that’s what it’s all about! Thanks for your comments Roshanda!
This is fantastic information…my first time here on your blog and am very impressed. Apparently I too have had an incorrect view of being wealthy. I was very interested once i read the following statement i was hooked…”(remember, wealth is measured in time, as in the number of months forward you can live without having to go back to work ”
That is a great example of having created wealth. Thank you for clearing this up for me…I will have to adjust my goals properly now!
Well i think that creating wealth just not that to make money . this is the name of popularity more then just make and save money. If a person is a millionaire and not have his personality ranking then his wealth does not count.
It’s funny that you just wrote this blog post, and I was reading one of Rich Dad’s products at the same time. I love his materials. I enjoy the Cash Flow game a great deal. This is a financial education game that virtually everyone can learn from … no matter what their current level of understanding is.
Thanks so much for this valuable and insightful post.
Hey Angela, Robert has been instrumental in helping to bridge the information gap. The fact that he’s a top selling author helps quite a bit as well. But it’s the content, the material that he presents that just isn’t being taught or communicated out there. People are hungry for this information! And the cash flow game is a great way to practice and learn the material.
Hi Hans, you raise a really important point. Creating wealth is not just about earing more money, it is also about cutting down or managing your expenses better. It is amazing when you just look at little ways of being smarter with your expenditure, how much more ‘disposable income’ you can create in your pocket at the end of the month,
thanks for the wisdom 🙂
Hey Mandy, don’t get me wrong I’m all about creating more income – I think that should definitely be the #1 focus. But in doing so, it’s important to watch and understand the other side of the equation, where the money is going because it’s how much money you keep that’s important. The more you make the more you can keep, but you can speed it up by cutting expenses and increasing income at the same time. Thanks for the comments!
I like how you provide information as well as teaching the process on how to get there. Great article and thanks for sharing these points!
Thanks for your feedback Diane. Come back any time!
Hi Hans, i enjoyed reading your article. For me, i prefer to Fastlane wealth creation. To create wealth, we need to create a new system that will benefit the industry. Never feel the defeat within you, it’s ourselves who we need to conquer! change the mindset for a better directions!
Hey Mike, thanks for your comments!
Your perspective regarding wealth and money was excellent. I never thought about it. People usually don’t really care about expenses. Thanks a lot for sharing this enlightening article.
Hey Andrew, everyone is always focused on income. And they should be, more specifically, passive income. Yet, on the same token, if you keep increasing your expenses or if your expenses are out of whack, you may never become financially free. So while I do not condone simply cutting expenses and living below your means as an approach to financial freedom, at some point, your expense do come into play so just make sure to keep an eye on your expenses and at least know what they are so you know how much passive income you need to make to reach the goal of financial freedom. Thanks for dropping by Andrew!
Enjoyed your article Hans. Where I live the cost of living is so high it is pretty common for people to juggle 2 sometimes 3 jobs just to live – and yet, it’s always puzzled me how many of those same people will do whatever it takes to avoid even marginal effort at starting their own business. I remember one woman very well who told me that even though she hated having to work multiple jobs, at least the hardest part was only keeping her schedule straight. When she wasn’t working, she didn’t have to “think.” Scary …
Marquita, it is scary! So many people want an escape from their life, just working to get by, to pay the bills and then when they’re not working they’re looking for a way to get away from their life. If you’ve struggled for a long time, beaten down time and again, it can be hard to even find the desire to want more because of the associated pain it brings. Everything we do in life is either to gain pleasure or avoid pain and in these people’s minds, getting away from the pain is more pleasurable then the pain of trying something again (only to likely fail again – that’s what they’re thinking in their minds).
The other part of the equation is belief. They lack belief in themselves for the same reasons, making it virtually impossible to change the situation. This can be remedied though with a little mindfeed – some good audios or books like Think & Grow Rich and others – on a regular basis. It’s amazing what this simple activity can do to completely change someone’s life. But THEY have to want it and THEY have to start the process. Thanks Marquita for your great comments!
I agree with you 100 percent! Most people only focus on trying to increase their income in order to sustain their growing number of assets/liabilities. We must all continually look to focus on our expenses as well and make adjustments to attain maximum wealth.
Thanks for sharing this Hans,
Hey Kevin, it’s kind of like someone who exercises religiously every single day, yet their diet may consist of fast food and tons of extra, unnecessary and unhealthy calories. Sure they may be fit, but without taking a look at both sides of the equation, they will not reach their ultimate goal of becoming healthy (in fact will likely only become more unhealthy), or in this case, wealthy. Thanks for the comment!
My first time to visit your blog and the first impression when I glanced through the post titles is just only WoW ! WoW ! WoW ! I Love It !
Such topics are definitely my favorite. Although I don’t write any post about wealth creation but this is everything about us. That is why I am never tired of making profits/ money 🙂
Yes, Hans…it is very very important to look into assets and liabilities. I am a firm believer of having assets but not liabilities. Many people look into leveraging the financial tool but ended up having higher liabilities which is not healthy. But when one plays it right, the potential of gaining fast income or returns can be great. This is marvelous !
Thank you, Hans…I will be back here again and again to read other posts. I enjoy learning new ideas !
You know your stuff, Hans. Happy that I am here today…feeling lucky and happy, Hans !
Pearly, thank for the kind words. A few years ago, I had a design created that I printed on shirts, car magnets, business cards that went like this: “Assets FEED you, Liabilities EAT you!” to help get the point across and really drive it home, visually. That’s what I’m all about: finding and creating assets that produce positive cash flow, ie, passive or residual income (which in turn can pay for my liabilities or “doodads” 🙂 However, most people seem to have it the other way around as you say, which is to go after liabilities (bigger house, nicer car, toys, vacations, etc) and then THEY end up becoming the over-worked asset to try and pay for it all! I’d rather let my businesses, real estate, etc pay for my cars, toys, etc. Great comment, thanks.
Hans you’ve brought up some great points! Many people have high spending habits they are unaware of or don’t accumulate savings and this over time can have a huge impact to their financial wealth. Ive never played Roberts game before, but it sounds very interesting. Sometimes even knowing specific things(like investing well or starting a residual income business) can propel us onto the fast lane and allow us to achieve our goals so much faster. I love the quote: wealth is measured in time, as in the number of months forward you can live without having to go back to work. This is definitely a great way to calculate where we’re at. Thanks for the inspiration.
Elaine, applied knowledge is power, you’re right! Just being familiar with certain terms or strategies can heighten our awareness and allow us to take advantage of certain opportunities we may not have otherwise known existed. And yes, I think time (versus net worth) should be the ultimate goal. Who cares if you’re worth $10 million. Hyper-inflation should set in and you might not even be able to buy a loaf of bread in a matter of months (hopefully not of course!), whereas if you had assets throwing off more residual income than you had expenses, you would be infinitely wealthy as long as your assets produced more income than your expenses. Money over time should have more emphasis than simply a certain amount of money. Thanks for your comment!
Hey Hans – Glad I found your interesting posts on creating wealth; you have an entirely fresh perspective and core concept that I haven’t really considered (well, not entirely in this way): “Creating wealth requires one to examine their own financial statement to understand the relationship between their assets and liabilities, their income and expenses”. It sounds so basic, seems so simple and yet, most of us don’t truly examine our own financial statements on a regular basis to get a honest picture of where we’re at. Thanks for the food for thought and I will be coming back to your blog to read some more! Cheers
Loren, I appreciate your feedback. It is very basic which is perhaps why it is often so overlooked. Yet this is such an important concept for people to truly understand and master. We all conditioned/trained/educated to simply focus on making money and this is why so many people live paycheck to paycheck – even those who make lots of money. In truth, to get ahead you need to make money but you also need to make sure you are spending less than you make and investing the difference to expedite the creating wealth process and let it compound on itself. Thanks for your comment!