Video Transcript: Your Net Worth and Your Personal Balance Sheet

We're going to start with lesson seven, which is your personal balance sheet and your net worth. Maybe some of you guys have seen this guy was from the author of Rich Dad, Poor Dad, Robert Kiyosaki. And one of the things that I learned from him was that live financial literacy was important in that without financial education, literacy, your money could soon be gone. And he said, a very simple concept, rich people acquire assets, poor and middle class people acquire liabilities, thinking that their assets and that if you want to make more money, you basically have to know the difference between these two. 

In the last segment, we covered net income, right? We said that basically, poor people spend most of their money getting into debt, middle class have nothing and the rich learn to pay themselves first. So if you continue to do this over a lifetime, what do you think is going to happen if every year you keep getting into more and more and more debt? Where are you going to end up at the end of your life? In tons of debt? If you never save anything, but you never borrow anything? What are you going to have at the end? Zero. And even if you start saving a little bit, but you learn how to invest and reinvest and reinvest, where could you earn what's the limit at the end of your life? Who knows, could be several million dollars, right? 

The next step that we want to learn is what's called your balance sheet. And we have to figure out how what is the balance sheet, a balance sheet, as it implies has two sides for them to balance, a balance sheet we first have to start off listing all of our assets are our assets are things that we have or things that we own that generate positive value and there's another thing called liabilities which are things that we owe for things that subtract money from our lives, so what are some of the positive things that put money in your pocket that's the number one thing that puts people money in people's pockets their job, right? That's an asset What did you have to acquire to get that job? Typically some degree, so before that degree, ok, you have to acquire education, right? 

Maybe experience, ok all these things. financial assets are intangible assets they're all intangible Can you see a job? Can you see experience can you see education now? So all these things I would label them as intangible assets, ok what are some financial assets? Let's do another label here. financial assets Okay, what else? Real Estate, what else, maybe having a business maybe some bank accounts, stocks and bonds, I would put them here, all right. What about having life insurance? That is that assets? Maybe not while you're alive, right, depending on which one you have, but is it an asset to somebody in your family?

There's actually two types of life insurance so one of them could be an asset to you. The other one maybe to your family. Do you have whole life that's an asset that you can use because it has what's called living benefits. The other types of assets have what's called a death benefit. For example, such as term, a whole life also has a death benefit, but in this case term only has death benefit, it's still an asset to somebody in your family. What else? Could we list his assets? 

How about your home? Is your home an asset or liability? Does it put money in your pocket? Or takes money out of your pocket? Liability actually. Right? This one is to collect rent, right? And produces rent. Right? Your purchase like your home and your car, I would call those a slightly different word I use the word purchases. Because even though they don't generate money for you, they do have some value if you sell them, right, they're not worth zero. 

So I would put your home here and maybe your cars in this category as well. Your furniture or something that maybe doesn't exactly cost or doesn't have the same worth as when you bought it, but it still has some worth right. Now, if we go across each of these on the other side, we typically find its counterpart on the liability side for example in the home in the cards those are the easiest what do we find on the other side of liabilities

So, typically, we find some type of loans so, for the home what is that called? A mortgage, right, for the car, the car loan on the other side of job or degree or education, what do we find on this site typically student loans hopefully not but a lot of people do have them What about on the other side of investments? Potentially maybe margin loan, right. Not necessarily but could be what about on the other side of real estate? 

Again some type of mortgage right, on those properties unless you own them outright What about on the other side of a business could be a business loan or line of credit right or line of credit taxes what else on the other side of life insurance could be policy loan, okay. Now, most people on the other side have bank accounts. This is typically a checking account or a savings account. What are the liabilities that most people have with banks, lacking, we should have lots of credit cards right. 

Now, what most people typically have more assets or more liabilities dollars wise. More liabilities right. Now we listed here some positive and tangible intangible assets, right? Do people have intangible liabilities? Sure they do. What are those called? Intangible, liabilities for example, if you're lazy that an asset or liability if you're dishonest, is that an asset or liability? That may be the type of character that you have right to be an asset or can be a liability, your reputation to be an acid, or to be a liability. I mean, I could put these on both sides. We could make a huge list of these negative characters, right? We're gonna go through them in just a minute. But just to kind of give you a sense where we're going. 

So let's go through this. So what is your balance sheet look like? What's on your asset column? What's on your liability column? What is net worth or equity? The difference between these two, right? So you guys probably saw a drawing like this, when you were a child showed you the water cycle. Water starts in the ocean evaporates, goes to the clouds, from there goes to the mountain comes down as snow or rain. 

Eventually, the snow melts, comes through some river and eventually ends up back where ocean right and then circled around. Money is kind of the same way. The government creates money through a central bank, they give it to the commercial banks, those commercial banks lend it to businesses and businesses hire employees. The employees go spend money with retailers, the employees pay money in taxes. And these guys borrow from the banks and the money just kind of goes around and around. So what's the cash flow pattern of an asset? An asset? puts money in your pocket? If it's a real asset? 

What's the cash flow pattern over liability? A liability takes money out of your pocket? What's the cash flow pattern of poor people as soon as they make money? It's gone. Right? What does the middle class do? They borrow money to buy nicer things, nicer car nicer house, nicer things, they put on credit cards, they make money, they see what liabilities they have, and then boom, out goes the money. Rich people try to accumulate what assets, things that make them more money continuously. Right. 

So we have to look at sort of which way is the cash flowing in your life, to see what your story is. So the point here is don't let the cash flow work against you. If you spend your whole life, acquiring more credit cards, more debts for mortgages, more loans, which was a cash flowing into your pocket or out of your pocket, right. So what is the goal of financial freedom, the goal of financial freedom is to reach the point at which you eliminate all the liabilities that are necessary out of your life. 

And you build up enough assets, so that those assets are generating cash flow, whether you work or not to sustain your lifestyle. So let's look at the balance sheet what's in it. We said you might have some things like cash, stocks, bonds, real estate, you might have made some purchases, like your home and your cars. Maybe you have some liabilities like your mortgage, your car loan, credit cards, student loans, etc. So at the end of the day, what's your net worth? We determine the net worth by subtracting all your assets from all your liabilities, right what you own, minus what you owe. 

So here's an example for a lot of people, a lot of people might have $1,000 in their checking account and might have a car and a home. But yet, they got humongous student loans. They got tons of credit cards, they got still owe their car, they sold their mortgage. So what do they have more of dollars in assets or dollars in liabilities, more dollars in liabilities. So this negative number means that they owe more than what they have. Right? So they gotta keep working to try to pay those off. 

Now, what does your intangible balance sheet look like? It's gonna go through a list of categories to see what side you fall more upon. So we're gonna end up figuring out what is more important your financial credit cards, I mean, your financial balance sheet or your intangible balance sheet. I've broken out the intangible balance sheet into several categories, for example, what I call the B assets and B liabilities. By me, I mean, to answer the question, Who are you? And who do you want to be? Who do you think is gonna make more money? Are you a reliable person? Or an unreliable person? What's a real life? What's What does it mean to be reliable? 

It means that if you say something, you're gonna do it. Right? Not maybe do it and not kind of do it. You're gonna do it. Who's gonna get paid more somebody who's reliable or somebody who's unreliable? What about honesty? What's up? Better quality to have? Would you rather do business with an honest person or with a dishonest person? Who's going to make more money in the long run? In terms of faithfulness? Is it better to deal with people who are faithful to their job and to their wife? Or husband? Or somebody who's cheating? Right? What about punctuality? 

Is it better to deal with people who are tight on time, or people who are always running late? Who's going to make more money, somebody who's persistent, or somebody who easily gives up? Who's gonna be do better, financially, somebody who's committed, or somebody who's uncommitted. Weigh yourself in the balance. What about in terms of beliefs, who's gonna do better in life, somebody who believes money as a tool, or somebody who believes money is evil. Somebody who sees themselves as a steward of the resources that go through their hands, or somebody who thinks it's all his money, doesn't have to give an account to anybody. 

Somebody who believes that God's will is to prop for them, or somebody who believes that it's poverty is a virtue. Somebody who believes and understands that God has a purpose for their life for somebody who has no idea what God's will and purposes for their life. You know, what beliefs are going to serve us better? In terms of the way we think, what's going to help us more to have a positive mental attitude or to always go around with the negative mental attitude? What's gonna be more beneficial to us to have an abundance mentality or a scarcity mentality? 

To go around with the positive perspective, or to always be thinking about fears and doubts, worries, insecurities. Who's going to do better in life, somebody who can recognize an opportunity for somebody who can only see limitations, every time they see an opportunity? What about in terms of knowledge? Who's going to do better in life, somebody who has an education, knowledge, information, skills and experience, or somebody who's ignorant, has invested no time to get an education, doesn't know how to do things doesn't even have a desire to learn? 

And has no experience? Who's gonna do better? Somebody who sees an opportunity? Or somebody who procrastinate? Somebody who knows how to make decisions for somebody who's indecisive. Somebody who takes action? Or somebody who doesn't take any action, or even worse, does a lot of analysis, but in the end and suffering paralysis? What about the people in your life? Who are you surrounded by? Do you have a good family? Do you have good mentors? Do you have good clients? Do you have good co workers, good employees, good suppliers? Or are you surrounded with people who are small minded, negative, and who don't have a good influence on you? 

We already talked about your financial liabilities and your financial assets. At the end of the day, when it's all said and done, and when you're ready to check out of this planet? What's going to matter most? Is your scorecard. Right? What kind of a name that you have when they mentioned your name? Some people mentioned your name? Do they say yeah, I really vouch for that person, you know, I really recommend him he's really good at what they say now stay away from that person, you know, don't deal with them. 

What kind of reputation Do you have? What kind of track record Have you built? What kind of experience do you have? What kind of what is your credit history saying? When you add it all up? How many people are better off in this planet? Because you came through? You know what, what did you do with the money that you built up? What kind of blessings that you enjoy during your lifetime that you have abundance that you have prosperity, success, freedom, peace of mind. And when you're gone? What kind of a destiny are you going to leave behind? You know, what's going to be your inheritance to your children and two grandchildren to other people on this planet?

So when we put it all together, a lot of people they're really limited in terms of what they can do financially because of what their intangible liabilities when you think about it, at best, what are the intangible assets that some people have? They might have a good work ethic. They might be honest, maybe they have a family. They have decent health, maybe some traditional education. But what are the things that hold them back? A lot of people have a victim mentality. 

They have they live in their comfort zone and don't want to get out of it. Right? They have bad habits, some addictions, maybe they hang out with the wrong crowd. They have fears, doubts and insecurities which keeps them from moving ahead. They might have bad attitudes, maybe some character flaws. What's the ideal thing that we should be shooting for? Ideally, You shouldn't be shooting for getting rid of as many of those intangible liabilities, definitely getting rid of all these financial liabilities, which are sucking money out of our life. 

Can we do that? First and foremost, by investing in what the best investment we can make the best investment we can make as in ourselves? Right? We have to invest in ourselves, we have to develop a prosperity and abundance mindset. We have to have a positive mental attitude, we have to have dreams, visions, purpose goals, a destiny, a sense of destiny, where are you going with your life? You know, start a business, learn how to invest, you know, manage your money properly. And enjoy life, you know, it's okay to own good purchases, but just realize they don't make you money. 

So the conclusion of this lesson is, how is your balance sheet? What is your net worth? Are you do you have a plan to improve your net worth every single month? How do you improve your balance sheet, I'll show you real quick. The purpose of what we try to do here is to do a scorecard of where you are today. And identify, for example, in the credit cards that work, that's what we're going to teach in the next lesson. But make it a goal to eliminate your credit cards. 

Once you get rid of the credit cards, and they're gone, what's going to happen to the cash flow is going to become available to them pay off what the next thing maybe could be your student loans. Once those are gone, now you've got cash flow from two places, what are you going to do with that? Right, start paying off other loans. You know, could be your mortgage could be your car loan. As you invest in yourself, and you develop more positive mental attitude and a better mentality of prosperity mentality. 

At the same time, what are you going to be getting rid of some of the bad things that hold you back? Alright, so the goal here is for all your liabilities to do what? Go towards zero and make your assets go up to what? Infinity? Right? The goal here at the end of the day is this minus this is going to give me your net worth. And we want your net worth every month for you to measure it. And to make it start improving, and increasing. 

That's ultimately what this whole course is about is to basically make you take become more aware of where you are, and find ways how to get rid of all these things. It might take you 5 years, 10 years, 20 years, whatever it takes, it doesn't matter. The whole point is, the more you work to get rid of these and the more you work to build these, the better off you your family in your world is going to mean. So I believe that that's the last slide of this particular lesson. Any questions? In the next lesson we're going to explain with numbers and with specific examples how we pay these debts. That right now I just wanted you to get sort of a bigger picture