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Do you manage your money? Of course yes, is the answer I would hear from most of you. But if I ask you, how to assess financial success? Most of you have to think for some time to come up with an answer.
Table of Contents:
Two pillars of financial success!
Cashflow-Oriented Mindset:
Networth-Oriented Mindset
The Thought Process Of Securing Net Worth
Short Term Enjoyment vs Long Term Contentment
The Art Of Handling Uncertainty
The Vicious cycle
Lack of an Effective System to Create Networth
But How do we do it?
Conclusion
Two pillars of financial success!
Managing our finances is a critical aspect of our everyday lives, and there are various measures to assess financial success. Among these measures, cash flow and net worth are the most common.
Cashflow represents the amount of money coming in and going out of our financial resources, while net worth refers to the value of our assets after subtracting our liabilities.
Cashflow and net worth present different viewpoints on our financial well-being and reflect distinct mindsets toward money management.
This article will delve into the differences between a cashflow-oriented and net worth-oriented mindset, and how to determine which approach is best suited to your financial goals.
Cashflow-Oriented Mindset:
Are you a person who takes life as it comes? This is for you!
How many of us have had a broken heart unable to afford what we want for our children and we somehow managed to afford it by taking debt?
“Truth is like a debit card, Pay first enjoy later. A lie is like a credit card, enjoy first pay later.”
Being a person who gives importance to short-term cash flow, you purchase something that you cannot afford and often take out a loan or use a credit card. This burdens your future earnings to pay off the debt.
This mindset is characterized by a focus on short-term cash flow management rather than long-term wealth building.
Housing loans, car loans, and leveraging BNPL cards, some of which help us manage our short-term cash flow needs.
You have faith and depend on your future income to make purchases today. But, what expenses are waiting for you tomorrow? Nobody can predict!
Networth-Oriented Mindset
Do you give more importance to securing wealth?
Imagine having a financial mindset that’s laser-focused on building and preserving your wealth. What does that wealth get converted into? Net worth. What is net worth?
“The value of everything you own minus what you owe.”
That’s what a net worth-committed mindset is all about!
The Thought Process Of Securing Net Worth
People with this mindset don’t just want to make ends meet or live paycheck to paycheck; they prioritize accumulating wealth and using it to cover their expenses.
They don’t rely on future earnings or borrow money to make ends meet. Instead, they strive for long-term financial stability and security over short-term satisfaction.
The Paradigm Shift in Mindset
Have you ever noticed that your grandparents seem to have less debt and more savings than your parents or even yourself? But why?
“Back in the day, it was more common for people to save up for big purchases, like a car or a house, rather than take out loans.”
Credit wasn’t as readily available as it is today, so people had more time to plan and save. This allowed them to avoid taking on too much debt. What is the term for this mindset? Yes, you are right! They were all Networth bound.
Short Term Enjoyment vs Long Term Contentment
Fast forward to today, and many of us are more likely to use credit to finance our lifestyles.
It’s so easy to swipe our credit cards or take out loans, especially with the pressure to keep up with our friends and maintain a certain lifestyle.
But the downside to this is that we often end up with more debt than our grandparents ever had.
The reliance on credit can be stressful and lead to financial instability, which can in turn impact our physical and mental health. It can also make it harder to save for our future goals.
We always forget the fact that our future is shaped by the actions and decisions we make in the present. Okay, now let us see how to handle unpredictable situations.
The Art Of Handling Uncertainty
“There is no point in whining that life is unpredictable instead Let’s see what is in our hands!”
Imagine you have a dream of a road accident, will you avoid going to the office the next day? Instead what you can do is, take it as a voice from the universe to be careful and wear your helmet diligently!
Given that life is unpredictable, there is always a possibility that our job status, income, or overall financial situation may change. It is important to consider this when making important financial decisions.
The Vicious cycle
Now, what happens when we consider cash flow as the most important thing?
When we take credit, retail investors like us fall into a cyclical pattern where we become trapped in a never-ending cycle due to a cash flow-oriented mindset. Many of us find ourselves heavily dependent on consistent cash flow from our salaries to sustain our desired lifestyles and to meet expenses. As a result, we become tied to our jobs and experience a sense of entrapment.
“Imagine Being Trapped In a Lift For 24 Hours”
“Claustrophobia hampers your freedom to travel without much worry, the same way entrapment to cashflow mindset leads to fear of risk”
This dependency also prevents us from taking risks, exploring entrepreneurial endeavors, or pursuing other opportunities that could potentially lead to financial freedom and independence.
After considering the implications of the cashflow-oriented mindset, it becomes evident that we often find ourselves back at square one, seeking additional credits or loans for various purposes.
Lack of an Effective System to Create Networth
Wait, let me ask you a question. Do you think we have established a system that fosters long-term wealth creation?
Unfortunately, the answer is a big NO!
“Despite our efforts to address immediate financial needs, we haven’t developed a comprehensive system that supports sustainable wealth accumulation.”
Instead, we often rely on short-term solutions that perpetuate the cycle of borrowing and indebtedness. This approach hampers our ability to achieve lasting financial prosperity.
- Robert Kiyosaki’ take on Networth Mindset
Cashflow can come and go, but net worth lasts. Invest in your net worth, and you’ll build a legacy that transcends temporary financial fluctuations
– Robert Kiyosaki
In his book “Rich Dad Poor Dad,” Robert Kiyosaki talks about the importance of having a net worth mindset.
A net worth mindset is a way of thinking about money that focuses on your assets, or the things you own that have value. It is not about your liabilities or the things you owe.
- Correlation Between Net Worth and Overall Financial Well Being
Kiyosaki argues that people who have a net worth mindset are more likely to be wealthy in the long run. This is because they are focused on building assets that will generate income for them, rather than spending their money on liabilities that will only drain their resources.
A net worth mindset can also help you achieve a cash flow mindset in one way or the other. Do you know why? Because, When we focus on building assets, We are essentially creating sources of income that can generate cash flow in the future.
- Real estate: You can rent out properties to generate income from rent payments.
- Businesses: You can start a business and generate income from the sales of your products or services.
- Dividend Yielding stocks: Dividend stocks are stocks that pay out a portion of their profits to shareholders in the form of dividends. Dividend stocks can be a great way to generate income from your investments.
Imagine you not only building your wealth but also taking care of the future cash flow. How great it would be? Your Imagination will become the reality if you could embrace the net-worth mindset.
But How do we do it?
- Establish clear financial objectives: Define your financial goals and aspirations. Having a clear vision will guide your actions and help you develop a roadmap for success.
- Monitor and analyze your expenses: Keep track of your spending habits to gain insights into where your money goes. This analysis will enable you to identify areas where you can reduce expenses and allocate resources more effectively.
- Develop a budget: Create a budget that aligns with your financial goals. This will help you manage your spending, allocate funds strategically, and increase your capacity for saving.
- Invest wisely: Explore investment opportunities that align with your risk tolerance and long-term objectives. Investments can generate passive income and contribute to the growth of your net worth.
- Prioritize debt repayment: Focus on reducing and eliminating high-interest debt. By paying off debts, you free up more of your income for saving, investing, and bolstering your cash flow.
- Embrace a frugal lifestyle: Live below your means by practicing mindful spending and prioritizing needs over wants. By keeping your expenses in check, you can save and invest more, accelerating your journey toward financial independence.
Conclusion
By implementing these tips, you can nurture a net worth mindset build your wealth over time, and ultimately achieve a cashflow-oriented approach that brings you closer to your financial goals.
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