Two Kinds of Money
Robert Kiyosaki built the Rich Dad, Poor Dad publishing empire on the concept of four kinds of earners: employees, the self-employed, business owners and investors. He calls it the cash flow quadrant-- a very useful rubric, one we all should come to understand. I highly recommend his books.
What Mr. Kiyosaki doesn’t discuss is the two kinds of money: income and capital. This distinction is essential to basic financial literacy and, indeed, to achieving financial independence.
Every dollar is a money seed.
Income is what you earn. Whether through physical labor, trading expertise for cash, or proceeds from your investments, income is money in motion. It is flowing into your possession. Once it comes to rest under your control, it becomes capital. I have often said that our financial future is entirely dependent on how we define the word “afford”, and for most of us, we think we can “afford” something if we have the cash in hand to buy it, or if our income is sufficient to make the payments. This is a destructive misconception. Income is seen as something destined to “out-go”, when in fact, once it hits your bank account, it is capital.
Capital is commonly known as “wealth”. Capital is what you have available to invest, and it is not always measured in currency. Capital can be invested in stocks, in real estate, in machinery. When it is, we can measure its value in dollars & cents (or Euros or yen or whatever).
But capital is also time. Your time. Capital is connections, expertise, skills and knowledge. Capital is the balance in your bank account and capital is whatever tangible goods you own that can be exchanged for anything else of value. Aunt Tilly’s ugly elf figurines that you can sell on e-bay for $5 a pop? This is capital. Your skills in welding or cake decorating or coding or landscaping, even if not your main career, are capital.
The key concept for today: every dollar is a money seed. Every dollar that flows into your hand arrives there because you traded capital for it. Capital in the form of your time, your skills, your goods or some investment you have made. And every dollar that comes into your hand is also capital, and an investable asset.
So let’s get real. Most of us are generating just enough income to cover our living expenses. And for many of us, not even that. Ladies, I know what it’s like to sweat the light bill. I’ve had to return diapers so that I could buy bread & milk. Life is not always roses and applesauce, and some of never see a damn rose. I get it.
That being said, most of us also dribble away a fair amount of investable capital on unnecessary expenses. When you realize those bread heels represent investable capital, you tend to get a little more creative on how you can use them—and save maybe a buck on your grocery bill. When you understand what you are actually blowing, that drink at the bar or the trip to the nail salon isn’t quite so appealing. Popcorn cooked in a skillet becomes a nice substitute for that bag of chips your kids are asking for. And those ugly elf figurines in the box under your bed? Those suckers get gone.
She who holds the gold, makes the rules. Financial independence can be achieved, one dollar at a time. One thing about capital—if you feed and shelter it properly, it grows. Every dollar truly is a money seed. Every dollar is part of the key to your freedom, a brick in the wall of your financial fortress.
Am I suggesting that you forgo every indulgence and live like it’s 1932? Not at all. But we need to realize that capital is power & security, and when we blow capital, whether in small ways or large, we are sacrificing our futures and weakening ourselves. Strong Women Win, and strong women work steadfastly towards financial independence every single day.
