Money has a unique language. To understand your money you need to learn how to speak this unique language. This language is usually called “financial statements.” All wealthy people inherently understand this language. They may not know the technical jargon but they surely understand how money works.
The common man on the street has no idea what this language is. Anyone who truly understands this language (not just intellectually) will become rich.
The good news is that anyone can learn how to speak the language of money Just a little effort and you will be better than the masses. There are three unique dialects of the language of money.
The first dialect is a keen to a casual greeting like “How are you?” When we are asked this question we usually go on to narrate how things are. We may describe the opportunities we have exploited. We might also describe things we have done. Basically we describe the opportunities and the corresponding costs incurred. This dialect is called an “income statement.” An income statement shows you the revenues and expenses for a given period. Through the income statement you assess how you really are financially. If revenues exceed costs we are good to go.
Imagine going to see a doctor for a routine check up. The doctor does a battery of tests and produces a report which shows how healthy you are. The doctor will check for infections, perform physical checks, measure temperature, etc. The same is true with your finances. At a given point in time we should be able to assess the health of our finances. We use a “balance sheet” to get this snapshot. This is the second dialect. The balance sheet shows our assets and liabilities. As long as assets exceed liabilities, we are healthy.
There was a rich tycoon who owned many buildings around town. At some time he had a medical emergency and had to go to India for treatment. However he could not raise the cash needed yet he was very rich. The tycoon was wealthy in terms of physical assets but he was cash poor. The third dialect in the language of money is the “cash flow statement.” The cash flow statement shows how much cash is moving through your life. As long as you have more cash coming in than going out you are doing well.
Everyone aiming for great riches needs to understand this alien language of money. Luckily for you, it has never been easier to learn a new language.