Economics is the study of the “flow of money.” It has nothing to do with accounting, or banking, or even finance. It’s all about how money flows. If you were thirsty, you would go to a stream of flowing water, not a stagnant pool. In a good economy, money flows well. Put another way, using the 10th Money Mastery principle, you could say “Money in motion creates more money.” Money must be put to use, like a bank uses it in loaning it out and asking for interest in return. Of course there is risk associated with putting money out and letting it work for you, but this is better than sitting on your money and letting it become worth less over time. Good flow means a good economy. Stagnation does not promote growth or prosperity. Thus, in your own “personal economy” it is vital that you learn how to put money in motion so it can make more for you.
Robert Allen emphasizes this point with his question, “How many millionaires do you know who have become wealthy by investing in savings accounts?” Money needs to be moving, or it stagnates and does nothing for you.
But before a person can put their money to work for them, they must first save some so they have something to work with. To be able to predict a good future, we must control our spending and create a surplus. This illustration depicts how this works:
This illustration shows poor old Larry hard at work. He brings home the money and pays for a mortgage, auto, food, etc. He has surplus at the end of the month, which is good and is the first step to financial success —creating a surplus each month.
Next, Larry gets an idea of how to turn his money over to make a profit, as shown in the illustration as gears moving together. The end result is more money with which to duplicate this same idea to create more money. Now, Larry could take that surplus and consume it all by buying things, such as a new car. Or he could take only a portion of his profits to buy things he wants and still have a profit. If he chooses not to put off purchases that will deplete his surplus, he will consume everything he makes. Surplus is the lifeblood of your future profits, so don’t eat your surplus.
Getting just a little bit of surplus in your hand can be so exciting and motivating. The only way to create that surplus is to learn how to control your spending. Learn more about how to do that here.