It’s the economy stupid
– Democratic campaign slogan 1992
I remember breaking into night sweats a few years ago anytime I went to bed.
I was breaking into these sweats and having nightmares because I had come under many financial pressures
I was under pressure emotionally and it felt like I was having a bad dream because I had invested in a property that was sucking money from my bank account every month and pushing me towards bankruptcy. The kicker to the story was that it was at time when the property market booming. I had no reason to be in debt after all, the assumption was that when you invest in real estate you can’t go wrong.
Unfortunately I was wrong and I was hemorrhaging cash to the banks, property Management Company and the local authority. And I was right in the middle of an economic prosperity. Flash forward to the present, my financial state is better and I am better off financially.
However we are in the middle of a global economic recession.
The Financial times reports the international monetary fund IMF, predict the global economy is entering into a prolonged period of economic recession. A global economic crisis of the scale being predicted could easily wipe out 40 million jobs according to a study by the organisation for economic coöperation and development (OECD) and the UN’s international labour organisation (ILO).
The constant steam of bad news about the economy could easily overwhelm you. However I want you to look beyond the doom and gloom about the economy, and focus on the most important economy you have…YOUR ECONOMY.
WHY YOU NEED TO FOCUS ON YOUR ECONOMY
I believe you need to focus on your economy because that is the most important subject for you now, not the world’s economy. I am not saying you should not read the news but focus only on your economy. You need to ask yourself…
How is your own economy doing now?
Is it doing well or are you in recession?
And the reason you need to focus on your economy is, because as a responsible adult you have financial obligations you have to fulfil.
I believe the most important measure of the state your personal finances is your cash flow.
Let me explain….
Your cash flow system tells you how money flows in and out of your pocket.
You cannot do funny money accounting about your cash flow like the Feds, banks or central banks and politicians.
The key to knowing how you are doing financially is to understand your cash flow system.
What do I mean by your cash flow system?
I mean movement of income and expenses.
Here is how your cash flow looks like. You have:
- Income …money you earn from work, investing and other income producing activities
- Expenses…bills, and money you have to spend to meet your obligations
- Assets…items you own that earns you money
- Liabilities….loans, credit card debts you incur that generate expenses
These four items I have just mentioned are the metrics you can use to measure the
state of your economy.
If you have more expenses than you earn then you have negative cash flow.
In this case you need to take action, so you don’t end up bankrupt.
On the flip side, if you earn more income than spend , you have positive cash flow.
When you earn more than you can spend, you can save more and invest more.
The same principle applies for liability and assets. Liabilities cost you money, assets earn you income.
How does these metrics apply to you?
It means you should focus on earning more income than incurring expenses.
And you should buy more assets and not liability.
If you are a subscriber to our newsletter you will notice we recommend you to spend time developing a rich mindset.
A person with a rich mindset avoids liabilities and is averse to debt.
The person with a rich mindset is always striving to earn more by expanding his means and acquiring assets. He knows that it’s in owning assets that ultimately makes him wealthy. The person with a rich mindset keeps his expenses and liabilities low.
This is what we recommend you do develop a rich mindset-so that your own economy will ride through any economic boom or economic recession.
Think rich and grow rich