My eight year old is richer than me!
Posted on August 2, 2008
Filed Under All Ages |
I have been trying to explain to my eight year old how she is actually richer than me.
She has zero liabilities, cash savings, and a steady passive income that more than pays for her wants.
Since her needs are fully paid for by me, her parent… She is already financially free.
Furthermore, I have explained to her that if she never spends more than she makes in any given month for the rest of her life, she will be rich and will always be rich… Forever!
So, how does this apply to you?
Simple really.
Rich is not defined by how much money you make or even how much money you currently have… Only by how much you have left over at the end of each month or how much you would have left if you were to pay all your liabilities.
Sound simple? It is. But, we are trained not to think that way… Instead, we normally look only at how much money a person makes or what car someone drives or what house they live in. But this is not always a clear picture of a persons financial situation.
For example, Mr. Rich, a computer programmer, makes $8,000 per month. Sounds decent. But, let’s delve deeper…
To begin, we all realize that there is no way Mr. Rich is taking home $8,000 per month… Instead, he is actually taking home about $6,000 per month… After taxes.
Next…
He and his wife each lease luxury vehicles (why shouldn’t they… They make plenty), totalling about 1,500 per month.
They live in a brand new home in a great neighborhood, the fully impounded mortgage payment runs them $2,500 per month.
Next, dining out and groceries cost their family of four $1,000 per month.
Gasoline, car insurance, and maintainence adds another $750 per month. Then comes $250 per month for the second that they took out on their house to put in a pool… Cell phones, cable, high speed Internet, Gardner, and the test of the standard utilities tacks on $1,000 more per month.
So far we are up to $7,000 in monthly expenses and we haven’t even touched on college savings, retirement savings, clothing, emergencies, travel, health insurance, etc.
Bingo!!! Mr. Rich is far from rich… In fact he spends more than he makes each month and has been for several years. In fact, what I failed to tell you is that Mr. Rich has tens of thousands in credit card debt and he continues to add to the debt each and every month… Because Mr. Rich spends more than he makes.
So what do you think of Mr. Rich now? Not so impressive.
Now let’s talk about Mr. Truth.
He is also married with two children. He also has two cars, a mortgage, and most standard expenses…
But Mr. Truth never spends more than he makes and he is truly rich.
To begin with, he owns both of his cars outright (that means no car payment to all you credit junkies).
Car #1 is an eight year old toyota camry (it’s near it’s end).
Car #2 is a three year old toyota camry that they just purchased for about half what a new one costs.
Their house is the smallest house in a good neighborhood. The mortgage on it, is $1,500 per month… Fully impounded.
Mr. Truth also takes home about $6,000 per month… But since he has about $2,750 per month less in expenses, he doesn’t spend more than he makes and he never incurs personal credit card debt.
Additionally, Mr. Truth sets aside small amounts of money to invest and save for the future, he fully funds his 401k, and he plans on purchasing a duplex as an investment property.
He does all of this without incurring credit card debt and god situation improves each and every month… While Mr. Rich continues to dig himself a deeper and deeper hole each and every month.
Now, I fully understand that most of you probably relate more to Mr. Rich than to Mr. Truth… But that’s ok.
You can change things, you can take control of your life… you can make a change for the better.
This website will give you examples of how to be honest with yourself and live a financially responsible life.
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2 Responses to “My eight year old is richer than me!”
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I love this whole website.
I have been reading every single article… this is really good information, and I know this will help parents and children.
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That is a little sad.
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