I remember when the "Millionaire Next Door" came out to tell people that the authors, who are professors of marketing, came up with a big discovery. They have found several high net worth (wealthy) people in the middle-class neighborhood driving "beat-up pickup truck" (hey, that's what I drive!) compared to high-class neighborhood.
These are the results we were well aware of what economists have for many years. The reason that these marketing professors thought they had stumbled on something new, because many people are confused about the difference between income and net worth. The difference is crucial to your financial health. Income is nothing more than how much money you bring in on a monthly or annual basis.
people to focus on income, because it puts a lot of bling bling bling in! In other words, income is cold hard cash coming every month to buy the goodies now. It also pays the bills, but not get rid of them. Your cash flow tells you how much of your income you get to keep.
Net worth measures what you owe in comparison to what you own of value. It is a measure of how much you are worth. Passive cash flow tells you how much your cash flow will come in, if you decided to stop going to work. You can see why guys like Robert Kiyosaki stressed passive cash in its accounts in wealth building.
The trick is to figure out how to get to the point where you do not need to do more if you do not want too. As financial economists have known for years that live within your means and saving and investing wisely to the fullest extent possible is the way to the pump and your net worth and passive income, so that you sleep in every morning, if you want.
Let me give you an example of a simple decision my wife and I made that had a huge impact on our financial health. When we were married we decided wanted to live in one of the upscale communities here in San Juan. This gated community is so large that it is actually under the closed community and the numerous attractions such as the largest and most modern swimming pool in the Caribbean.
We decided to purchase a 3 bedroom 2 bath condo that is within our means at $ 125,000.00. Now that we are richer and the condo has increased in value about $ 200,000.00 that we can sell it and move to a $ 1,000,000.00 house like the ones at the top of the hill is on our condo. We decided to renew our condo and instead to live each day as if we were in a luxury hotel.
Why is this big decision? Living in a modest home prices, we were really able to deck it out. Also, this is very important for you to understand, we are paying only a fifth of property tax for local government compared with what would, if the "Pope ", as many people when their finances improve. Money really does roll down hill, because I certainly would not want to have to cough up a bunch of money every year just to pay property tax!
Another danger of people do not realize is that local governments rely primarily on property taxes to fund their pork barrel politics. primary source of revenue for most state governments is property tax! local Puerto Rican government is now in deficit. I guarantee that the discussions among the bones of the head of the local capital, which should be a tax on property "reformed". It certainly seems expensive home financial powder keg, is not it!
Why do I suspect that most people in the community of a million dollars to just above us live above their means? Since they are the worst to pay compensation to his community and had a lot of their services cut back! Just like those found in the book "The Millionaire Next Door, " many, many households in upscale stores are putting up the appearance.
Many of these families are financially unhealthy, and deadbeats when it comes to paying what they owe. These families have less to invest in the stock market because they have bigger bills to pay. These families are often less successful in the stock market because of the pressure on their high debts or focus them in the short term stock investing where they are at a disadvantage.
Since we have a lower cost to our humble home we are much less at risk if anything changes. Once we cash out the mortgage on our home we could even lose both our jobs and get to buy dishwasher at a local Taco Bell. It is certainly not the case when you have to pay property taxes on one million U.S. dollars home!
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