The topic of "financial management" is one that I believe everyone is familiar with today. Major financial institutions, banks, insurance companies, funds, internet finance, P2P lending, and private lending have introduced a dazzling array of financial products, various financial literacy training programs, and a vast amount of financial knowledge. People's awareness of financial management is continuously strengthening. The phrase "If you don't manage your finances, they won't manage you" has also become a catchphrase.

However, thirty years ago, financial management was still a very unfamiliar term for Chinese people. The earliest introduction and popularization of the concepts of financial management and financial literacy in China should be attributed to Robert Kiyosaki's "Rich Dad Poor Dad" series of books.

Mr. Robert Kiyosaki, known as the world's number one financial literacy master, divides income into two major categories based on people's ways of earning: "active income and passive income," and classifies people into four quadrants: E quadrant (employees, office workers), S quadrant (freelancers, small business owners), B quadrant (entrepreneurs, organization builders), and I quadrant (investors, financial managers).

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Each of us can find our own position and role within these four quadrants. Mr. Robert Kiyosaki also introduced concepts such as assets, liabilities, cash flow, and financial statements through this series of books. These are the most fundamental concepts for awakening our financial literacy and opening the door to financial management.

So, what is financial management? In the most common terms: "financial management" is about how to preserve, appreciate, earn interest, and compound the money you have worked hard to earn. Financial management is a lifelong financial planning and strategy.

The true wealth of this world is not money, but time and the abundance of a free lifestyle. Money is just a tool to achieve this goal. A wealthy life is inseparable from money, and spending money is a lifelong matter. However, making money should not be a lifelong endeavor. Earning money is about acquiring the tools, while financial management is about using them. Earning money is the beginning of financial management, and financial management is the sublimation of earning money.

Each of us initially needs to make money in various ways, whether through physical labor, intelligence, energy, education, time, and talent. Initially, we all need to work for money. But what happens after we make money? What happens as we age, our ability to earn money decreases, and our capital for making money weakens?

Why must people in this era learn financial management? The main reasons can be divided into two: first, the currency devaluation caused by inflation; and second, the increase in living costs brought about by economic development. These two major reasons are like the two sides of a coin, interrelated and influencing each other.

What is inflation? The so-called currency is the general currency, that is, the renminbi. With the economic development of the country, the market's demand for currency will inevitably increase. The country will definitely issue currency in a timely manner with the development of the economy. The more currency is issued, the more diluted it becomes, and the purchasing power of each unit of currency decreases. In other words, money becomes thinner, and money is continuously depreciating.

At the end of the 1970s, the term "ten thousand yuan household" was a resounding title, synonymous with being a tycoon. At that time, the price of rice was 0.14 yuan per jin, and the price of meat was 0.95 yuan per jin. The minimum wage at the end of the 1960s was 36 yuan, and the lowest price for a movie ticket was 0.05 yuan. Now, the minimum price for a movie ticket is at least 30 yuan, a 600-fold increase. Inflation is like an invisible knife; whether you see it or not, it is silently affecting your life. Renminbi inflation is the invisible killer of wealth!Do not underestimate the power of inflation. Even a modest annual rate of 2% to 3% can be devastating to the purchasing power of money. Consider the data illustrated in the graph below.

In the long run, socio-economic systems have always been subject to inflation, sometimes more severe and other times more moderate, but the overall trend is a continuous rise in prices. For instance, if an individual holds 1 million yuan in cash assets without making any investments, and the inflation rate is merely 3%, the real purchasing power of this sum will be equivalent to only 412,000 yuan today after 30 years. The actual situation is often more severe than the hypothetical scenario. Did you know? The average inflation rate over the past decade has been 6.83%.

The following data represents the devaluation of the Chinese yuan due to inflation rates over the past 5, 10, 20, 30, and 40 years. The figures may not be entirely accurate because there are several methods for calculating the inflation rate. Different methods reflect different perspectives: government, business, banking, labor, and civilians, each with their own interests, hence the varying algorithms. However, the general trend and approximate range are similar.

Digital presentations can make the speed of currency devaluation more visually apparent. Numbers are a more truthful language, telling us why we might feel poorer despite working harder. Humans have two legs, while money has four, always outpacing us. Our earnings can never match the pace of currency devaluation, which is why we must toil throughout our lives for money, essentially working and living for it.

Numbers also remind us of the importance of financial management. It is imperative to learn about finance, especially self-managed financial planning, to combat inflation and prevent currency devaluation. We must learn how to make money work for us, how to preserve and increase its value, how to leverage compound interest, how to build assets, and how to create cash flow.

From this set of data, we can also observe a phenomenon: the Chinese yuan is depreciating at a rate of tenfold every decade. This is a pattern, especially in today's fully networked and digitalized world, where the faster the currency circulates, the quicker the inflation rate will rise. But can our income consistently increase tenfold over a decade?

This is why we must learn about financial management. Without inflation, if our money did not depreciate, we could earn and save more when we are young and rely on those savings and pensions for a comfortable retirement. However, such thinking is no longer viable.

Looking at the current situations in Japan and South Korea, which are 20 years ahead of China in development, we can see that our present is akin to their past. They have long been in an aging society, and the reality is that many people in their 60s and 70s are still compelled to seek employment.

China's aging era has arrived, and over the next 30 years, the population ratio will become severely imbalanced, with the proportion of the elderly growing larger. Providing for the elderly will be a long-term and arduous task. Various circumstances compel us to learn about financial management now. Relying solely on savings, pensions, and insurance is ultimately unreliable. This is a harsh and inescapable reality.The age we are in now is actually the most awkward age, a period of midlife crisis. If we don't have assets or cash flow income at hand, it's really dangerous. Therefore, all those who learn about financial management are people with a strong sense of crisis.

The Significance and Goals of Financial Management

Now let's look back at the phrase "If you don't manage your finances, they won't manage you." Does it have a deeper meaning now? Alright, let's talk about what the significance and goals of financial management should be.

Financial management is not about getting rich overnight. It's about building assets and creating a passive cash flow income process. The purpose of financial management is to stop working for money, to stop worrying about money, to free oneself from the life of making money, to gain more time and freedom, and to better enjoy life. Therefore, financial management focuses more on the safety, continuity, stability, and longevity of returns. To establish the correct financial mindset, one must first break the idea of getting rich overnight, speculation, and the pursuit of quick success.

Financial management is about using today's money to pave the way for the future, just like a farmer planting crops. How to plan the ratio of seeds to food is how to plan the family's income and expenditure situation. Money is the seed in the hands of the financial manager. Planting the seed in fertile soil and putting money into high-quality assets, and carefully managing it, weeding, fertilizing, and watering, is the process of managing one's own assets. The process of the seed taking root, sprouting, flowering, and bearing fruit is the process of money's preservation, appreciation, interest, and compounding.

Plant a grain of millet in spring, and harvest ten thousand seeds in autumn. There is no idle land in the world, yet farmers still starve. This poem vividly metaphorically illustrates the importance of financial management.

Financial management is something everyone needs and must have. Today, a person who doesn't understand or manage finances will live a hard life, and it will get harder and harder. In the face of rapidly rising prices and inflation, everyone is anxious and helpless. High income, high consumption, high inflation, and high debt are the lifestyles of people living in this era. How to manage finances? How to ensure that the money in hand is preserved, appreciated, earns interest, and compounds? This is a subject that everyone needs to think about.

Financial management is a major lesson in life, concerning our lifelong financial planning and strategy, our future lifestyle and quality, and our understanding, thinking, concepts, and control ability of wealth.

What is Independent Financial Management?

Now is an era of financial management, especially in the age of the internet. The rise of internet finance has rapidly strengthened and deepened people's financial concepts and awareness. In this networked era, everything is fast, and social development and renewal are changing rapidly. People's needs are constantly being excavated, refined, magnified, and hijacked. In the past, we could stay at home and not spend money, but what about now? Your needs are being hijacked at any time and anywhere, with countless invisible hands reaching for your wallet.For instance, the fixed monthly expenses on your mobile phone, the monthly utilities such as water and electricity bills at home, broadband fees, gas fees, your clothing, food, housing, and transportation—all of these now require a monthly or annual subscription to access, including watching a movie online. The development of the internet is infinitely amplifying and hijacking your life. In the future, if you want to live a normal life, you have no choice and nowhere to hide.

A crucial aspect of financial management is to pay attention to the nature and balance of your income and expenditure items. In the future, as society continues to develop and progress, we will enter an era of networking and intelligence, where an increasing number of passive and compulsory expenditure items will permeate every aspect of our lives. However, do you have passive income items to balance them?

If you are only a person with active income, then you need to carry more water, earn more money, and you need to invest more time, physical effort, knowledge, and intelligence to balance your financial situation. In that case, you will never have the time and freedom to enjoy the real life.

We are consumers throughout our lives, and we need to spend money all our lives, so our passive expenditure items will be a bottomless pit. If we do not consider the nature of our income items and if we remain only a person with active income, then we will spend our entire lives, physical strength, knowledge, and intelligence as the price to balance our financial issues. In that case, we will be kidnapped and enslaved for life.

There is a saying that if you do not change the way you earn income, you will never change your lifestyle. So, why learn financial management? Learning financial management is to change this state and break out of this vicious circle. Passive expenditure items cannot be changed; the only way is to transform the nature of our income items, turning active income into passive income. Only in this way can we liberate ourselves and win the true wealth: time and freedom.

The four quadrants of wealth, the left side is for people with active income, and the right side is for people with passive income. In this diagram, each of us can find our own position and role. There are two ways to obtain passive income, one is quadrant B, building a system, and the other is quadrant I, investing money, learning to manage finances independently, and achieving money making money.

Let's talk about the first method, building a large system and letting this system operate automatically and healthily, which can bring in passive income. So, what is a system? A system can be a company, enterprise, industry, organization, or network, etc. For example, if you establish a company and you are the boss, your company operates automatically. Even if you do not work, as long as the company can function normally, you will have passive income.

Alternatively, you could build a large organizational network. For instance, if you are a successful direct seller and have established a vast marketing network, as long as your network operates normally, you will also have passive income. However, the difficulty of building and maintaining a good system is very high. Not everyone can become a successful boss or a successful direct seller. Therefore, we will not delve into this method; it is a game for the strong.

Investing and making money grow

Let's talk about the second method, which is to let money grow through investment and financial management. This is a very typical and common method, and there are many such financial management methods in today's society. For example, banks, insurance, funds, trusts, private lending, crowdfunding, and the emerging internet financial products are too numerous to mention. If we discuss each one individually, it would stretch the topic too far, so we will only briefly touch upon it.All of these financial products actually share a common characteristic, which we refer to as "custodial financial management." This means that you give your money to these institutions in one lump sum or in installments, and then sign a return agreement. These institutions will then independently manage and handle your money, and ultimately ensure the return of your principal and interest at the end of the agreement. Correct? So, during the term of the agreement, what these institutions do with your money is something you won't inquire about, nor do you have the right to inquire about. Therefore, this is merely a form of custodial or entrusted financial management. It is a hassle-free method, but what exactly do these institutions do with your money? How much profit do they actually make? You will never know.

There are also two very important concepts here, "assets and liabilities." All passive income does not materialize out of thin air; all passive income is generated through assets. To use an inappropriate analogy, assets are like hens, and passive income is like eggs. Those who truly understand financial management will direct their money towards assets, while those who do not understand will only use their money to purchase liabilities. To embark on the path to financial freedom, the first step is to distinguish between assets and liabilities.

Assets and liabilities are viewed from the perspective of accounting and cash flow. In simple terms, assets are things that make you richer, while liabilities are things that make you poorer. Assets are things that can increase the amount of money and flow into the income category; liabilities, on the other hand, are things that can devalue money and flow into the expense category. Whether your money flows towards assets or liabilities is the dividing line between those who know how to manage finances and those who do not. The wealthy acquire assets, the poor only have expenses, and the middle class purchases what they think are assets but are actually liabilities. This is the biggest difference between the rich and the poor.

The wealthy value long-term value and are good at using assets to increase their worth; the poor prefer short-term benefits, creating the illusion of high consumption through continuous spending and indulging in the pleasure it brings. To summarize simply, assets are what bring you cash flow income, while liabilities are what consume your cash flow. Why do the rich get richer? Because they keep buying real assets, while the poor keep buying liabilities. Therefore, it is crucial to distinguish between assets and liabilities, to keep your eyes open, to buy more assets and fewer liabilities, and when the cash flow provided by assets can cover your living expenses, you achieve financial freedom.

We all hope to achieve passive income through financial management and realize financial freedom, but the vehicle for generating passive income is assets. When we engage in custodial financial management, those institutions take our money and buy many hens, which lay many eggs. When the agreement period ends, these institutions only return a portion of the eggs to us, and the hens and more eggs become theirs. Therefore, through custodial financial management, we can never obtain assets, and naturally, we cannot truly gain passive cash flow income and achieve financial freedom.

This is what people often say: the poor depositing money in banks is actually subsidizing the rich. In the case of high inflation, banks implement low interest rates, and the more money is deposited, the less it is worth. The meager interest cannot keep up with the rise in prices. The small amount of pension that the poor have saved up over a lifetime is gradually consumed by inflation, while the rich use the poor's money from the banks to invest in assets, and the poor never obtain assets. Money that does not circulate is a liability because it is constantly depreciating, and money is the biggest liability item. Therefore, banks are places where the poor become poorer by saving and the rich become richer by borrowing.

So, what if we want to take our money to buy hens to lay eggs ourselves? Of course, you can, but that requires you to have a very unique vision, a keen sense of touch, a broad range of social connections, and strong asset management capabilities. This is because high-quality assets in this society are scarce resources, and generally, scarce resources are monopolized and controlled by the rich. Moreover, managing and controlling assets also requires strong capabilities and strength, which are not accessible to ordinary people.

Therefore, investing money and using it to generate passive income through financial management is actually a more difficult task. It is not just a matter of ability; it is more challenging than establishing a system to achieve passive income. Hence, the vast majority of people can only choose custodial financial management.

However, only through self-managed financial management can we control our own financial situation, build assets that truly belong to us, establish our own passive cash flow income, and achieve financial freedom.

So, what is self-managed financial management? Self-managed financial management is about controlling your own funds, managing your own risks, controlling your own returns, building your own assets, and planning your own future.Cash Flow and Cash Quantity

Two important concepts that need to be emphasized are "cash flow and cash quantity." Many people do not understand the difference between cash flow and cash quantity. If one cannot distinguish what is cash flow and what is cash quantity, it is natural to be confused about the true meaning of being rich or poor.

For example, owning a property and receiving a certain amount of rental income every month is considered "cash flow." If one sells their property at a high price after the real estate market increases, earning a substantial sum, this income is categorized as "cash quantity." Any income that is earned in one lump sum is considered "cash quantity." Cash quantity might be a large amount of money, but it is a one-time event, not sustainable. No matter how much one earns, it is finished after one transaction.

On the other hand, "cash flow," as the name suggests, is a continuous stream of cash income, even when one is not working. In other words, it is income that one can still receive without being employed. The characteristic of cash flow income is that it may not make one extremely wealthy, but because it is a constant source, it allows for a free and worry-free life. One does not have to worry about not having food to eat if they lose their job or feel anxious. Therefore, obtaining "cash flow" is the key to achieving financial freedom.

The principle is simple, yet often confused. It is common to hear people say that someone is very rich, earning tens of thousands of dollars a month. However, a high monthly income does not necessarily equate to being rich. The key is whether these tens of thousands of dollars are cash flow or cash quantity. If it is merely salary income that ceases immediately when one stops working, it is just a high cash quantity, not wealth. This is called being a "rich poor person," someone who appears rich but is not.

Typically, those with high incomes also have high expenses. If they lose their job or face an unexpected event in life, their living conditions can become even more dire. However, income with a cash flow nature, even if it is just a small amount like one thousand dollars, can provide freedom, reduce anxiety, and serve as an effective safeguard for life.

The true meaning of financial freedom is not about being extremely wealthy but having an effective safeguard for life. Having a cash flow income that ensures one does not worry about living expenses, and being able to do anything they like at any time without worries, is what defines a truly rich person.

Wealth management is about cultivating a lifestyle and ability, not just the difference between having money or not. In fact, the gap in wealth is increasingly reflected in the gap in concepts. A true wealth management mindset is when our financial situation is temporarily calm, we have the opportunity to continuously preserve, increase, earn interest, and compound our idle money. When our financial situation faces crises and risks, we can immediately cash out and use the money to handle the crisis and mitigate risks.

To achieve this situation, one needs to deeply understand the meaning of assets and cash flow. Assets are our solid financial foundation, and cash flow is the financial lifeline we rely on for survival.

The ultimate state of financial freedom is when you do not feel ashamed for being frugal with clothing and food, do not need to prove your wealth by being bloated (dà fù pián pián), and do not need to flaunt your wealth to gain respect, because your character already shines brightly.Your wealth is meant to provide a life not of luxury, but of comfort and dignity for those you love and who love you. In this way, wealth can truly grant you the freedom of the soul. This might be the true essence of financial freedom!