Financial Freedom Series: Become a Wealth Builder
Welcome back to our Financial Freedom Series, where we’re looking into God’s Blueprint for Building Wealth and Managing Your Money Well!
We dive into biblical principles and cutting-edge money management wisdom to help you…
- Honor God with your money
- Build wealth
- Shrink your debt
- And build toward financial freedom
Over the last month, we looked at the importance of improving your CASH FLOW so that you can build your WEALTH FLOW. We examined the importance of having an INCOME STATEMENT and a BALANCE SHEET, as this can help you revolutionize your money management.
What is Your Income Statement?
An INCOME STATEMENT is a statement that clearly shows your INCOME and your EXPENSES.
INCOME refers to money that you EARN and causes money to FLOW IN.
EXPENSES refers to the money you SPEND and causes money to FLOW OUT.
Your income statement will show the FLOW of your CASH.
If you spend less than you earn, you will have a POSITIVE CASH FLOW.
If you spend more than you earn, you will have a NEGATIVE CASH FLOW.
Your INCOME brings wealth flowing IN.
Your EXPENSES cause wealth to flow OUT.
| YOUR INCOME STATEMENT… INCOME – EXPENSES = CASH FLOW |
What is Your Balance Sheet?
A BALANCE SHEET is a statement that clearly shows…
- Your ASSETS
- Your LIABILITIES
An ASSET refers to any ITEM OF VALUE that can be converted into cash – WHAT YOU OWN.
Your assets include…
- Cash in your bank savings
- Investments
- Property
- Personal items
Your assets have the potential to earn extra income through interest, dividends, and rental income, which will cause more money to flow back into your income statement.
A LIABILITY refers to any DEBT you have to re-pay, usually with interest – WHAT YOU OWE.
Your liabilities include…
- Loans
- Mortgage (home loan)
- Credit and store card debts
- Vehicle finance
Your liabilities will increase your expenses, causing more money to flow OUT of your income statement.
Your BALANCE SHEET will give you a good understanding of your NET WEALTH.
| YOUR BALANCE SHEET… ASSETS – LIABILITIES = WEALTH PORTFOLIO |
To create WEALTH, your ASSETS need to be greater than your LIABILITIES.
If you spend all you earn, you will NOT BUILD UP ASSETS.
If you have too much debt, all your income will go towards LIABILITIES.
| INCOME STATEMENT | BALANCE SHEET |
| INCOME: Use your hard-earned money wisely. Save and invest so that you can turn your income into assets. | ASSETS: Growing your assets will lead to building your wealth portfolio and will bring in more income. |
| EXPENSES: Cut wasteful expenditure and spend less than you earn. | LIABILITIES: You need to shrink your debts. |
We have looked at WHAT TYPE OF MONEY MANAGER ARE YOU?
Do you GO WITH THE FLOW, or do you have a PLAN?
Are you a SPENDER or a SAVER?
Are you creating DEBT or building WEALTH?
Are you BREAKING-EVEN even each month, just spending all you earn?
“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.” (Charles Dickens)
Are you SHORT each month, thereby needing to take on debt or max out the credit card to get by?
Are you able to spend less than you earn, thereby being able to TURN YOUR INCOME INTO ASSETS?
The way you manage your money each month will affect your short-term stress or joy levels and shape your financial future. Will your current money management leave you broke or financially free in the future?
The simple day-to-day choices you make regarding how you manage your money often only show up in later years.
Are you setting yourself up for a brighter tomorrow, or is your current money management sabotaging your future goals and dreams?
The good news is that if you are prepared to change the way you manage your money, you can change your future destiny.
What Type of Money Manager Are You?
We have looked at 4 types of money managers…
- BREAK-EVEN MONEY MANAGER
- THE SPENDER
- THE MIDDLE-CLASS MONEY MANAGER
- THE WEALTH BUILDER
Today, I want to encourage you to become a Wealth Builder…
“Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.” (Proverbs 21:5)
A Wealth Builder
If you are a wealth builder, you will manage your money carefully. You will take a disciplined approach to your money management and ensure you live within your means.
Wealth builders understand that debt erodes cash flow and can be a stumbling block in growing assets. Therefore, they limit debt and always save before they spend.
Wealth builders also ensure that a significant portion of their disposable income is invested.
Wealth builders plan well, setting savings aside and building their investments to help achieve future goals and dreams.
Wealth builders…
- Take a disciplined approach to money management.
- Think twice before spending
- Live within their means
- Deny short-term spending impulses
- Practice delayed gratification, enabling them to stay out of debt and buy items for cash
- Build healthy cash flow over time
- Create a habit of saving before they spend
- Are on the road toward financial freedom
In Summary…
- To create wealth, you must squash your debt and spend less on your expenses.
- As you shrink your liabilities and build your assets, your wealth portfolio will grow. This, in turn, will generate extra income, thereby improving your cash flow and wealth flow.
“The wise man saves for the future, but the foolish man spends whatever he gets.” (Proverbs 21:20)
“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” (Dave Ramsey)
“You may say to yourself, “My power and the strength of my hands have produced this wealth for me. But remember the Lord your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today.” (Deuteronomy 8:17-18)
The Wealth Builder:
| INCOME STATEMENT | BALANCE SHEET | ||
| INCOME: Earn R10,000 p.m. | ASSETS: R2,000 p.m. surplus income is invested (increasing as income increases) Will build to… R193,261 over 5 years R622,498 over 10 years R1,503,809 over 15 years R3,229,199 over 20 years R6,500,824 over 25 years R12,563,569 over 30 years R23,607,046 over 35 years R43,448,885 over 40 years *Assuming a 10% return p.a. in a diversified portfolio | ||
| EXPENSES: Spend R8,000 p.m. Save R2,000 p.m. | LIABILITIES: No or low debt | ||
| CASH FLOW: R2,000.00 (Wealth builders have little bad debt and less stress, positive cash flow, turn their income into assets) | WEALTH PORTFOLIO: (Wealth Builders are on the road to financial freedom) |
If you build margin into your budget and start investing your surplus income, you will BUILD WEALTH, which will SET YOU UP ON THE JOURNEY toward FINANCIAL FREEDOM.
I Want to Encourage You to…
- WIPE OUT YOUR DEBT
- LIVE WITHIN YOUR MEANS
- SPEND LESS THAN YOU EARN
- SAVE BEFORE YOU SPEND
- INVEST TO BUILD UP ASSETS
If Your Money Management is Not Working, then Be Prepared to Change…
- Reduce your EXPENSES and keep them as low as possible
- Shrink your DEBTS
- Divert as much of your INCOME into ASSETS
- Continually increase your ASSETS
You Can Become a Wealth Builder…
- YOU CAN BE A GOOD MONEY MANAGER
- YOU CAN TURN YOUR INCOME INTO ASSETS
- IT IS TIME TO BUILD TOWARD FINANCIAL FREEDOM
“The wise are cautious and avoid danger; fools plunge ahead with reckless confidence.” (Proverbs 14:16)
