Command those who are rich in this present world not to be arrogant nor to put their hope in wealth, which is so uncertain, but to put their hope in God, who richly provides us with everything for our enjoyment. Command them to do good, to be rich in good deeds, and to be generous and willing to share. (1 Tim. 6:17-18)

Friday, March 26, 2010

Balance Sheet Affluent vs. Income Statement Affluent

In The Millionaire Mind book by Thomas J. Stanley, Dr. Stanley mentions two types of "wealthy" families. The first type is the Income Statement Affluent family, and the second type is the Balance Sheet Affluent family.

The Income Statement Affluent looks great on a tax return. They have a lot of income coming into the home, but the greatness ends there. If you dig deeper into their financial situation, they are living on the razor's edge. They are really living more paycheck to paycheck like their middle-class friends. They have the big homes and the fancy cars, but they also have a lot of debt. Their liabilities far outweigh their assets. Their overall net worth is severely lacking.

On the other hand, the Balance Sheet Affluent looks great on a balance sheet. They have great incomes, but they also have little or no debt. They have saved money. They have invested wisely. They have paid cash for their assets. They have very few liabilities. They don't believe in using credit. As Dr. Stanley puts it, they have the "Millionaire Mind."

OK, so you now you're asking the question, "So what? Who cares about the Balance Sheet or the Income Statement Affluent?" The big deal with these two types of wealthy families is that the Income Statement Affluent aren't truly that wealthy. Yes, they have a lot of money coming in, but the majority of it is going out the back door to pay off debt and bills. If this family's income ever evaporates, they will be in serious trouble.

The Balance Sheet Affluent, however, are the true millionaires. If their income ever dips, they can survive financially for a long time without feeling the strain, because they don't live or think paycheck to paycheck. They have been frugal and wise with their finances. They have focused on their balance sheet.

So, now that we're armed with this knowledge, what's the take away for the rich Christian?
  1. Handle your money wisely like the Balance Sheet Affluent. Avoid Debt. Purchase assets and not liabilities. Focus on how your balance sheet reads, not just on how much money is coming in the front door.
  2. Become balance sheet wealthy in another sense - store up your assets in Heaven through living a life of generosity. In the end, this is all that will matter, anyway.
Is your financial focus on your income statement or your balance sheet?

No comments:

Post a Comment