This is the cash-flow pattern of a poor person:
This is the cash-flow pattern of a person in the middle class:
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This is the cash-flow pattern of a rich person:
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All of these diagrams are obviously oversimplified. Everyone has living
expenses, the need for food, shelter, and clothing. The diagrams show the
flow of cash through a poor, middle-class, and wealthy person’s life. It is
the cash flow that tells the story of how a person handles their money.
The reason I started with the story of the richest men in America is to
illustrate the flaw in believing that money will solve all problems. That is
why I cringe whenever I hear people ask me how to get rich quicker, or
where they should start. I often hear, “I’m in debt, so I need to make more
money.”
But more money will often not solve the problem. In fact, it may
compound the problem. Money often makes obvious our tragic human
flaws, putting a spotlight on what we don’t know. That is why, all too often,
a person who comes into a sudden windfall of cash—let’s say an
inheritance, a pay raise, or lottery winnings—soon returns to the same
financial mess, if not worse, than the mess they were in before. Money only
accentuates the cash-flow pattern running in your head. If your pattern is to
spend everything you get, most likely an increase in cash will just result in
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an increase in spending. Thus, the saying, “A fool and his money is one big
party.”
Cash flow tells the story of how a person handles money.
I have said many times that we go to school to gain scholastic and
professional skills, both of which are important. We learn to make money
with our professional skills. In the 1960s when I was in high school, if
someone did well academically, people assumed this bright student would
go on to be a medical doctor because it was the profession with the promise
of the greatest financial reward.
Today, doctors face financial challenges I wouldn’t wish on my worst
enemy: insurance companies taking control of the business, managed health
care, government intervention, and malpractice suits. Today, kids want to be
famous athletes, movie stars, rock stars, beauty queens, or CEOs because
that is where the fame, money, and prestige are. That is the reason it is so
hard to motivate kids in school today. They know that professional success
is no longer solely linked to academic success, as it once was.
Because students leave school without financial skills, millions of
educated people pursue their profession successfully, but later find
themselves struggling financially. They work harder but don’t get ahead.
What is missing from their education is not how to make money, but how to
manage money. It’s called financial aptitude—what you do with the money
once you make it, how to keep people from taking it from you, how to keep
it longer, and how to make that money work hard for you. Most people
don’t understand why they struggle financially because they don’t
understand cash flow. A person can be highly educated, professionally
successful, and financially illiterate. These people often work harder than
they need to because they learned how to work hard, but not how to have
their money work hard for them.
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