Financial Literacy

Topics: Balance sheet, Generally Accepted Accounting Principles, Income statement Pages: 30 (8509 words) Published: July 28, 2010

“Financial literacy is one of the most important investor basics, especially if you want to be a safe investor, an inside investor, and a rich investor. Anyone who is not financially literate cannot see into an investment. Just as a doctor uses X-rays to look at your skeletal system, a financial statement allows you to look into an investment and see the truth, the facts, the fiction, the opportunities, and the risk. Reading a financial statement of a business or individual is like reading a biography or an autobiography.”

“A business has a financial statement, a stock certificate is a reflection of a financial statement, each piece of real estate has a financial statement, and each of us as an individual human being has a financial statement attached to us…Everything – regardless of if it is a business, real estate, or human being – that transacts money has an income statement and balance sheet, whether or not they know it. People who are not aware of the POWER OF A FINANCIAL STATEMENT often have the LEAST MONEY and the BIGGEST FINANCIAL PROBLEMS.”

“While you were in school, you got a report card once a quarter. A financial statement is your report card once you leave school. The problem is that since most people have not been trained to read financial statements or how to keep a personal financial statement, they have no idea how they are doing once they leave school. Many people have failing marks on their personal financial statements but think they are doing well because they have a high-paying job and a nice home. Unfortunately, if I were handing out the grades, anyone who was not financially independent by age 45 would receive a failing grade. It’s not that I want to be cruel. I just want people to wake up and maybe do a few things differently…before they run out of their most important asset: TIME!”

“A person needs to get his or her own personal financial statement under control before investing.”

“This process I have been talking to you about is the process of taking control of yourself, which also means your financial statement. So many people want to invest because they are deep in debt. Investing in the hopes of making more money so you can pay your bills or a buy a bigger house or a new car is a fool’s investment plan. You invest for one reason: to acquire an asset that converts earned income into passive income or portfolio income. That conversion of one form of income into another form of income is the primary objective of a TRUE INVESTOR. And to do that requires a higher degree of financial literacy than simply balancing a checkbook.”

“So you’re not concerned about the price of a stock or piece of real estate. You’re more concerned with the operating fundamentals, the fundamentals that you can see with a financial statement?”

“Where you find the best investment opportunities is from understanding accounting, the tax code, business law, and corporate law. And it in these invisible realms where the real investors shop for the biggest investment bargains.”

“People leave school not even knowing how to balance a checkbook much less how to prepare a financial statement. They never learned how to control their finances. And the only way you can tell if people are in control of themselves is by looking at their financial statements.”

“Just because people have high-paying jobs, big houses, and nice cars does not necessarily mean they are in control financially. If people knew how a financial statement worked, they would be more financially literate and more in control of their money. By understanding financial statements, people can better see how their cash is flowing.”

Literacy Lesson #1: It is the direction of cash flowing that determines if something is an asset or a liability, at that moment. In other words, just because your real estate broker calls your house an asset does not mean it is an asset.

Literacy Lesson #2: It takes at least two financial statements...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Financial Management Essay
  • Assessment of Personal Financial Wellness of Teachers Essay
  • Essay on Financial Literacy on Manufacturing Employees
  • Financial Literacy Essay
  • Financial Management for Young Adults Essay
  • Financial Literacy in the Philippines Essay
  • Essay about The Way of Financial Capability Is Through Financial Literacy: Indian and Global Scenario
  • Financial Literacy Proposal Essay

Become a StudyMode Member

Sign Up - It's Free