Have you ever wondered how the rich keep getting richer while broke people stay broke and the middle class continues to shrink?  This isn't as mysterious as it may appear when you examine the specific differences in how broke people, the middle class, and the rich spend their money.

Today we talk about The Wealth Creation Formula.

If you missed last week's episode, be sure to listen to Finding The Drive To Be A Huge Success In Real Estate with Rod Khleif.

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The Wealth Creation Formula
Our show is about creating substantial passive income and creating wealth for the long term. That's the subject of today's episode. It's wealth creation, or more specifically, the wealth creation formula. Have you ever wondered how the rich keep getting richer, while broke people stay broke and the middle class continue to shrink? This isn't a mystery as it may appear when you examine the specific differences on how broke people, the middle class and the rich spend their money. This is such a simple concept, yet it's so profound. I believe I finally understood this concept on a train ride with my wife from Rome to Florence, Italy. I had picked up a new book called Rich Dad, Poor Dad by Robert Kiyosaki. Once I started reading it, there was no putting it down. What was made clearer to me at the time is how the rich spend their money. What I'm going to explain to you today is why the rich keep getting richer, the broke keep getting broker and why the middle class remain stressed out.

Wealth Creation:Cashflow, the money that you bring in. Expenses is money that you spend. Asset is something you own or have equity in.

Before we start, it's important to understand some common financial terms. The reason is many people misunderstand their real meaning. The terms that you need to be familiar with are the following: Cashflow, which is the money that you bring in. Expenses is the money that you spend. Asset is somewhat of a confusing term because most people are familiar with the traditional definition of an asset, which is something you own or have equity in. However, Robert Kiyosaki introduced us to a new definition of an asset in his Rich Dad series of books. Robert defined an asset as something that pays you, and that's the definition I've adopted and the one that we'll use here. Liabilities, is defined as those things that cost you money. A typical example is one's house, which is often viewed as an asset, but it can actually be a liability. Anything that costs you money is a liability, not an asset. If you have a mortgage on your house, it's an asset to your bank because it pays them every month. However, a house or other property can also be considered an asset under the right circumstances. If that property generates income, like a rental property, and it pays you a positive cashflow every month after all expenses, then it would be considered an asset. Just remember that an asset has to put money in your bank account. Cashflow is the money you make, while expenses is the money you spend.

Let's take a look at how broke people spend their money. Keep in mind that my definition of a "broke person" are not those that are destitute. I'm referring to that large portion of our society that live paycheck to paycheck and never seem to have any money. In fact, they often have to borrow from Peter to pay Paul, run up credit cards and they find themselves with more month leftover at the end of their money. Broke people purchase what I'm going to call stuff. Those things that people buy that they really don't need to survive.