Financial Statements
Rich Dad said, "The riskiest investor of all is a person who is out of control of his or her personal financial statement. These are people who have nothing but liabilities that they think are assets and as much in expenses as they have in income and whose only source of income is their labor."

Understanding your Financial Statement is the foundation for taking control of your personal finances. Rich Dad believes the relationship between the Income Statement and the Balance Sheet is everything. What is the first step to financial freedom? Take control of your Financial Statement.


Cash Flow Pattern of the Poor (or a young person still living at home): The poor spend every penny they make and they have no assets and only liabilities. The cash flow is limited to income and expenses and the cash flow pattern of the poor reflects income from a job that is used to pay expenses like rent, food, clothes, transportation and taxes.


Cash Flow Pattern of the Middle Class: Individuals in the middle class accumulated more debt as they become more successful. A pay raise qualifies them to borrow more money from the bank so they can buy personal items like bigger cars, vacation homes, boats and motor homes.
Their wage income comes in and is spent on current expenses and then on paying off this personal debt. As their income increases, so does their personal debt. This is what we call the Rat Race.

Cash Flow Pattern of the Rich: The rich have their assets work for them. They have gained control over their expenses and focus on acquiring or building assets. Their businesses pay most of their expenses and they have few, if any, personal liabilities.


An individual's cash flow pattern may show a combination of these three types. Which pattern does your financial statement reflect? What story does your financial statement tell? Are you in control of your expenses?
 

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