The arrows in the diagrams represent the flow of cash, or "cash flow." Numbers alone really mean little. Just as words alone mean little. It's the story that counts. In financial reporting, reading numbers is looking for the plot, the story. The story of where the cash is flowing. In 80 percent of most families, the financial story is a story of working hard in an effort to get ahead. Not because they don't make money. But because they spend their lives buying liabilities instead of assets.

Illiteracy, both in words and numbers, is the foundation of financial struggle. If people are having difficulties financially, there is something that they cannot read, either in numbers or words. Something is misunderstood. The rich are rich because they are more literate in different areas than people who struggle financially. So if you want to be rich and maintain your wealth, it's important to be financially literate, in words as well as numbers.

Job (provides income) -> Expenses (Taxes Food Rent Clothes Fun Transportation)

The reason I started with the story of the richest men in America is to illustrate the flaw in the thinking of so many people. The flaw is that money will solve all problems. That is why I cringe whenever 1 hear people ask me how to get rich quicker. Or where do they start? I often hear, "I'm in debt so I need lo make more money."

This is the cash flow pattern of a person in the middle class:

Asset (none)

Liabilities (none)

Assets (stocks bonds notes real estate intellectual property) -> income (dividends interest rental income royalties)

Liability (none)

Asset (none)

The diagrams show the flow of cash through a poor, middle class or wealthy person's life. It is the cash flow that tells the story. It is the story of how a person handles their money, what they do after they get the money in their hand.

All of these diagrams were obviously oversimplified. Everyone has living expenses, the need for food, shelter and clothing.

Liability (Mortgage Consumer loans Credit Cards)

Job (provides income) -> Expenses (Taxes Food Mortgage Clothes Fun Transportation)

This is the cash flow pattern of a wealthy person:

But more money will often not solve the problem; in fact, it may actually accelerate the problem. Money often makes obvious our tragic human flaws. Money often puts a spotlight on what we do not know. That is why, all too often, a person who comes into a sudden windfall of cash -- let's say an inheritance, a pay raise or lottery winnings -- soon returns to the same financial mess, if not worse than the mess they were in before they received the money. Money only accentuates the cash flow pattern running in your head. If your pattern is to spend everything you get, most likely an increase in cash will just result in an increase in spending. Thus, the saying, "A fool and his money is one big party,"

I have said many times that we go to school to gain scholastic skills and professional skills, both important. We learn to make money with our professional skills. In the 1960s, when I was in high school, if someone did well in school academically, almost immediately people assumed this bright student would go on to be a medical doctor. Often no one asked the child if they wanted to be a doctor. It was assumed. It was the profession with the promise of the greatest financial reward.

Because students leave school without financial skills, millions of educated people pursue their profession successfully, but later find themselves struggling financially. They work harder, but don't get ahead. What is missing from their education is not how to make money, but how to spend money -- what to do after you make it. It's called financial aptitude -- what you do with the money once you make it, how to keep people from taking it from you, how long you keep it, and how hard that money works for you. Most people cannot tell why they struggle financially because they don't understand cash flow. A person can be highly educated, professionally successful and financially illiterate. These people often work harder than they need to because they learned how to work hard, but not how to have their money work for them.

Today, doctors are facing financial challenges I would not wish on my worst enemy; insurance companies taking control of the business, managed health care, government intervention, and malpractice suits, to name a few. Today, kids want to be basketball stars, golfers like Tiger Woods, computer nerds, movie stare, rock stars, beauty queens, or traders on Wall Street. Simply because that is where the fame, money and prestige is. That is the reason it is so hard to motivate kids in school today. They know that professional success is no longer solely linked to academic success, as it once was.

The moving-picture show of hard-working people has a set pattern. Recently married, the happy, highly educated young couple move in together, in one of their cramped rented apartments. Immediately, they realize that they are saving money because two can live as cheaply as one.

The story of bow the quest for a Financial Dream turns into a financial nightmare.

The No. 1 expense for most people is taxes. Many people think it's income tax, but for most Americans their highest tax is Social Security. As an employee, it appears as if the Social Security tax combined with the Medicare tax rate is roughly 7.5 percent, but it's really 15 percent since the employer must match the Social Security amount. In essence, it is money the employer cannot pay you. On top of that, you still have to pay income tax on the amount deducted from your wages for Social Security tax, income you never receive because it went directly to Social Security through withholding. Then, their liabilities go up.

The problem is, the apartment is cramped. They decide to save money to buy their dream home so they can have kids. They now have two incomes, and they begin to focus on their careers. Their incomes begin to increase. As their incomes go up…their expenses go up as well.

This is best demonstrated by going back to the young couple. As a result of their incomes going up, they decide to go out and buy the house of their dreams. Once in their house, they have a new tax, called property tax. Then, they buy a new car, new furniture and new appliances to match [heir new house. Ail of a sudden, they wake up and their liabilities column is full of mortgage debt and credit-card debt.

They're now trapped in the rat race. A child comes along. They work harder. The process repeats itself. More money and higher taxes, also called bracket creep, A credit card comes in the mail. They use it. It maxes out. A loan company calls and says their greatest "asset," their home, has appreciated in value. The company offers a "bill consolidation". Loan, because their credit is so good, and tells them the intelligent thing to do is clear off the high-interest consumer debt by paying off their credit card. And besides, interest on their home is a tax deduction. They go for it, and pay off those high-interest credit cards. They breathe a sigh of relief. Their credit cards are paid off. They've now folded their consumer debt into their home mortgage. Their payments go down because they extend their debt over 30 years. It is the smart thing to do.

Their neighbor calls to invite them to go shopping -- the Memorial Day sale is on. A chance to save some money. They say to themselves, "I won't buy anything. I'll just go look." But just in case they find something, they tuck that clean credit card inside their wallet.

They don't even know that the trouble is really how they choose to spend the money they do have, and that is the real cause of their financial struggle. It is caused by financial illiteracy and not understanding the difference between an asset and a liability.

I run into this young couple all the time. Their names change, but their financial dilemma is the same. They come to one of my talks to hear what I have to say. They ask me, "Can you tell us how to make more money?" Their spending habits have caused them to seek more income.

More money seldom solves someone's money problems. Intelligence solves problems, There is a saying a friend of mine says over and over to people in debt. "If you find you have dug yourself into a hole… stop digging."

As a child, my dad often told us that the Japanese were aware of three powers; "The power of the sword, the jewel and the mirror."

The sword symbolizes the power of weapons. America has spent trillions of dollars on weapons and, because of this, is the supreme military presence in the world.

The mirror symbolizes the power of self-knowledge. This self-knowledge, according to Japanese legend, was the most treasured of the three.

The jewel symbolizes the power of money. There is some degree of truth to the saying, "Remember the golden rule. He who has the gold makes the rules."

The poor and middle class all loo often allow the power of money to control them. By simply getting up and working harder, failing to ask themselves if what they do makes sense, they shoot themselves in the foot as they leave for work every morning. By not fully understanding nioney, the vast majority of people allow the awesome power of money to control them. The power of money is used against them.

If they used the power of the mirror, they would have asked themselves, "Does this make sense?" All too often, instead of trusting their inner wisdom, that genius inside of them, most people go along with the crowd. They do things because everybody else does it. They conform rather than question. Often, they mindlessly repeat what they have been told. Ideas such as "diversify" or "your home is an asset.", "Your home is your biggest investment.", "You get a tax break for going into greater debt.", "Get a safe job.", "Don't make mistakes.", "Don't take risks."

It is said that the fear of public speaking is a fear greater than death for most people. According to psychiatrists, the fear of public speaking is caused by the fear of ostracism, the fear of standing out, the fear of criticism, the fear of ridicule, the fear of being an outcast. The fear of being different prevents most people from seeking new ways to solve their problems.

It is that same fear, the fear of ostracism that causes people to conform and not question commonly accepted opinions or popular trends. "Your home is an asset.", "Get a bill consolidation loan and get out of debt.", "Work harder.", "It's a promotion.", "Someday I'll be a vice president.", "Save money.", "When! get a raise, I'll buy us a bigger house.", "Mutual funds are safe.", "Tickle Me Elmo dolls are out of stock, but I just happen to have one in back that another customer has not come by for yet."

That is why my educated dad said the Japanese valued the power of the mirror the most, for it is only when we as humans look into the mirror do we find truth. And the main reason that most people say "Play it safe 1' is out of fear. That goes for anything, be it sports, relationships, career, money.

By the time Mike and I were 16 years old, we began to have problems in school. We were not bad kids. We just began to separate from the crowd. We worked for Mike's dad after school and on the weekends. Mike and I often spent hours after work just sitting at a table with his dad while he held meetings with his bankers, attorneys, accountants, brokers, investors, managers and employees. Here was a man who had left school at the age of 13, now directing, instructing, ordering and asking questions of educated people. They came at his beck and call, and cringed when he did not approve of them.

Here was a man who had not gone along with the crowd. He was a man who did his own thinking and detested the words, "We have to do it this way because that's the way everyone else does it." He also hated the word "can't." If you wanted him to do something, just say, "I don't think you can do it."

Many great financial problems are caused by going along with the crowd and trying to keep up with the Joneses. Occasionally, we all need to look in the mirror and be true to our inner wisdom rather than our fears.

But because of this, both Mike and I just could not go along with the standard dogma that our teachers preached, And that caused the problems. Whenever the teacher said, "If you don't get good grades, you won't do well in the real world," Mike and I just raised our eyebrows. When we were told to follow set procedures and not deviate from the rules, we could see how this schooling process actually discouraged creativity. We started to understand why our rich dad told us that schools were designed to produce good employees instead of employers.

Occasionally Mike or I would ask our teachers how what we studied was applicable, or we asked why we never studied money and how it worked. To the later question, we often got the answer that money was not important, that if we excelled in our education, the money would follow.

Mike and I learned more sitting at his meetings than we did in all our years of school, college included. Mike's dad was not school educated, but he was financially educated and successful as a result. He use to tell us over and over again. "An intelligent person hires people who are more intelligent than they are." So Mike and I had the benefit of spending hours listening to and, in the process, learning from intelligent people.

My highly educated dad never pressured me about my grades. I often wondered why. But we did begin to argue about money. By the time I was 16, I probably had a far better foundation with money than both my mom and dad. I could keep books, I listened to tax accountants, corporate attorneys, bankers, real estate brokers, investors and so forth. My dad talked to teachers.

One day, my dad was telling me why our home was his greatest investment. A not-too-pleasant argument took place when I showed him why I thought a house was not a good investment.

The more we knew about the power of money, the more distant we grew from the teachers and our classmates.

The following diagram illustrates the difference in perception between my rich dad and my poor dad when it came to their homes. One dad thought his house was an asset, and the other dad thought it was a liability.

I remember when I drew a diagram for my dad showing him the direction of cash flow. I also showed him the ancillary expenses that went along with owning the home. A bigger home meant bigger expenses, and the cash flow kept going out through the expense column.