Overview

Welcome to this deep dive into the essentials of cashflow, wealth-building, and investing! Whether you’re new to managing money or brushing up on your know-how, understanding these foundational concepts can help you make smarter financial decisions. In this session, we’ll cover key terms like passive income, assets, liabilities, earned income, and practical strategies for improving your personal cashflow. Get ready to develop a strong mental framework for excelling in quizzes and, more importantly, real-life money management!

Key Concepts

Let’s break down the core ideas you need to master for this topic:

1. Passive Income

• Passive income refers to money earned with minimal ongoing effort. Common examples include rental income, dividends from stocks, or profits from businesses you don’t actively manage.
• It differs from earned income, which requires active work, like a salary or wages.

2. Assets vs. Liabilities

• Assets are things you own that put money in your pocket, often by generating income or appreciating in value (e.g., rental properties, dividend-paying stocks).
• Liabilities are obligations or debts that take money out of your pocket over time (e.g., loans, credit card debt).

3. Cashflow

• Cashflow is the net movement of money in and out—essentially, income minus expenses.
• Positive cashflow builds financial freedom; negative cashflow can lead to financial stress.

4. Investment Returns

• Understand how to evaluate investments by comparing cost, income, and expenses (e.g., rental property income vs. mortgage payments).

5. Financial Freedom

• Achieved when your passive income covers your monthly expenses, reducing your reliance on earned income.

Worked Examples (generic)

Let’s walk through a few scenarios similar to what you might see:

Example 1: Rental Property Income

Suppose you buy a property that generates rental income.