Asset VS Liability
This is probably two of the most important terms that people mess up in the definition, and it makes people go into deep financial trouble.
In financial accounting, we are taught that asset is something you own, and liability is something you owe. It makes sense from an accounting perspective but will totally kill you if you use these definitions in your financial life.
Definitions
Assets: Items that put money in your pocket no matter you work or not.
Liabilities: Items that take money out of your pocket no matter you work or not.
Implication
The problem for most people is that they know assets are good things, but they mistaken the wrong things as asset.
For example, if I buy stocks that pay me dividends, that's assets.
If I buy physical gold and silver and hold them, they can be assets or liabilities. If I sell at a price higher than I bought, it's an asset. If I sell at a loss, it's a liability.
If I buy a house to live and pay mortgage and maintenance every month, the house is a liability. Unless later I rent it out and make a profit every month, or I sell it at a higher price and minus all the expenses I paid and there is still a profit, THEN the house becomes an asset.
Asset and liability are always mistaken by people, and if someone claims that they have financial knowledge, it is unforgivable for them to get this wrong. If you are looking for a financial adviser and s/he says junk like "your house is your biggest asset", you should fire the adviser.
Poor, Middle Class, and Rich
There are 2 ways to define the class of poor, middle class, and rich.
Definitions
1. By income (more conventional definition).
Poor: $0 - $25,000 per year
Middle Class: $25,000 - $100,000 per year
Affluent: $100,000 - $1 million per year
Rich: $1 million or more per year
Super Rich: $1 million or more per month
2. By cash flow.
Since we always stress that money does not make you rich, we can also look at cash flow of a person to see whether the mindset of the person belongs to poor, middle class, or rich.
Poor: Money comes in as (most cases) earned income, and goes away in the form of expense.
Middle Class: Money comes in as (usually) earned income, and goes away in the form of expense and liability payments.
Rich: Money comes in as passive income or capital gains, and goes into building and acquiring more assets.
Implication
Both definitions are useful.
The first definition provides you a guideline of the income you need for the life style you want. This is also exceptionally useful when you try to define your exit strategy for your retirement. Do you want to retire as a poor, middle class, or rich? Build that amount of passive income and you should be rewarded to the life style accordingly.
The second definition is useful to read beyond income level to see someone's financial mindset. It is NOT telling you to be judgmental, but in life it is useful to understand the mindset of others. For example, if you want to get financial advice, do you want to get advice from a poor, a middle class, or a rich? If you understand this definition, you will understand that someone who earns $1 million per month may not be rich after all, if his/her cash flows shows a different mindset than the rich.
Rich and Wealthy
Being rich (in this case this is an adjective, not a class of people) and being wealthy mean very different things (though they can be related).
Definitions
Rich: There is an abundance.
Wealthy: The number of days you can live the current life style if you quit working today.
Implication
By definition, you can be rich in many ways. You can be rich with friends if you have a lot of friends. You can be rich with love if a lot of people love you dearly. If you have an abundance of money, then you are financially rich.
Being wealthy, however, is a very different animal. Just as health is measured in time (for example, someone who only has a few years of life left is less healthy than someone who can still live 30 more years), wealth is also measured in time. If you are wealthy, it means you can live in your current life style without working. This would also imply that just because you have a high income or a high paying job, does not mean you are wealthy!
The further implication here is that, if your wealth is larger than your health (you can last longer financially than you can live), or if your wealth is infinity (passive income > expense), then you achieved financial freedom!
Investment VS Speculation
It is vital to distinguish between investing and speculating, as most people may not even know the difference between the two.
Definitions
Investing: When you put your money in, you earn money from day one. You make profit when you BUY.
Speculating: You put your money in, and hope later you can sell at a higher price. You make profit when you SELL.
Implication
There is nothing wrong for playing the investment game or speculation game. It's a personal choice and you can get rich either way. However, speculation requires a lot more skills than investment, as risks are higher because you don't get anything during the speculation period. When you speculate, time is not your friend, as you reduce the velocity of your money if you let the money gets trapped too long (not to mention tax code is not as favorable toward speculation).
The problem nowadays is that most people with little to no financial knowledge SPECULATE in the market (be it stocks, real estates, bonds, or anything), and they think they are INVESTING. Again, if a financial adviser comes by and tells you to "invest in a mutual fund for long term", but the mutual fund gives you no dividend and you can only hope for capital gain, consider firing the financial adviser and call him/her a quack.
Leadership VS Management
In general, there are 3 different characteristics between a leader and a manager.
Definition
Characteristic 1:A leader focuses on doing the right things, and a manager focuses on doing things right.
Characteristic 2:A leader is at the front line showing others the way to go, and a manager sits at the back overseeing the progress of the work.
Characteristic 3:Leaders must be able to surround themselves and work with people smarter than they are, whereas managers often work with people less capable than they are.
Implication
Both leadership and management are good skills to have. However, if you want to be a successful entrepreneur and/or investor, you need to develop your leadership instead of management.
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