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Smart Money Lesson

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a) What “broke” really means

It means losing your primary source of income and having difficulties in maintaining the lifestyle you have become accustomed to because you have no assets to rely on.

Many people have built expensive lives they can’t sustain because they continuously spend everything they earn and as such have a revolving shortage of money.

b) What is to be wealthy

Wealthy is financial success based on spending patterns.  Moving up the

Income-earning scale, able to afford materials things that were once out of reach.

Building wealth is more about how much you save.

Broke people think it is about how much you earn but rich people know its about how much of the income can be saved and converted into assets that can become an income in future.  The difference is that wealthy people understand the relationship between how we earn and how we spend and they know where the balance is.

c) Income

There are two types of income

  • Active income.
  • Passive income.

Active income is the income you get from services rendered income from your job (salary) or your business.

Passive income is where money works for you.  It is the income you get regularly from investment you’re already made.  Good examples are dividends from your share’s deposits or rental income from a property you own.

d) Financial freedom

Financial freedom is when passive income exceeds your expenses. i.e. All assets accumulated can pay you enough of an income to pay for your lifestyle.  E.g. rental income or dividends can buy you a car.

e) Net worth

Calculate your net worth.  Your net worth is your assets minus your liabilities.  Calculating your net worth now will let you know your starting point.

Compiled by

Samuel Kuria

 

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