Accounting Is The Vocabulary Of Money

Category: Finance.

Author of the" Cash Flow Quadrant" book, says his, Robert Kiyosaki" Rich Dad" maintains that real estate investing is not rocket- science. But it s common knowledge that logic is not, terribly common, in fact.

Rich Dad suggested it was simply an issue of using logic. According to" Rich Dad" , the least effective investors are people who have simply not studied the process. Others leap before they look and wind up suffering a loss. They assume that real estate investing is either a scam or just too risky. The best opinion anyone can have concerning real estate investing is simply to educate yourself. One of your most valuable resources is time and if you waste that, you ll often find that your money will come next- money you have in hand that you wind up squandering, money you would have saved if you had simply invested the time to figure out the techniques of successful investors. "That is just fine and dandy, " you may say. If, in your rush to make money, you start investing without that education, you ll be doing yourself a big disservice.

You most likely accede that education is typically a smart thing. But" what training should I get? " may be what you are asking. Knowledge is power, after all. Your second question is probably going to be, "How do I go about getting it? " The first thing you can do is study some fundamental accounting, which is not as ambiguous as it appears to be. If you re planning on investing in a company or an investment property( or whatever) , you ll want to be able to check up on it to see if it ll be a benefit( make you money) or a liability( cost you money) . Accounting is the vocabulary of money. It sounds like common wisdom when you think about it, doesn t it?

There are 4 common types of financial statements: cash flow statements, balance sheets, income statements, and statements that express changes in a share holder s equity. But if you want to be able to establish these things, you ll want to be able to understand accounting- statements. The last is fairly self explanatory, and addresses the characteristics that lie between at 2 different points in time. Your" cash flow statement" is a certificate that depicts the cash needed to make a company function properly, together with where the money came from. A shareholder s equity is it s total assets subtracting it s total expenses, essentially the net worth of a company. Wikipedia equates a business to a very big kettle of H20 which catches more of the liquid and has lines pouring out of it- into the investor s pockets and those to whom the company is in debt. The earnings( or P& L statement) keeps track of a businesses earnings and losses due to expenditures over a period of time, while a balance sheet provides a description the same thing for 1 particular time- period and addresses liabilities and assets.

Your cash- flow- statement attempts to communicate the activity of the liquid- or in other words the movement of that cash. It all seems quite straightforward until you reflect upon" Rich Dad s" advice on telling your liabilities and assets apart. It sounds rational. He says that the bank, will declare your, for instance property of residence as an asset. After all, it is some thing you own, right? It s considered a liability because it ultimately costs you money in payments and repairs.

But as stated by Kiyosaki s rich dad s definition of liabilities and assets, your house is generally a liability. It definitely isn t earning money for you, and up to the time it begins doing that( say, you change residence and are able to rent the first property out to make you some money) , then it still is not an asset on your balance sheet. The house you are living in is an asset on THEIR balance sheet because it is making money for them. Not that the bank is lying to you outright. That s the type of thing you can figure out for yourself and determine whether you are losing or making money on an investment, if you take the time to educate yourself education. Don t forget: Knowledge is power.

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