What is Your Wealth Conversion Ratio?

What percentage of your monthly expenditure comes back to you as positive cash flow?

What percentage of your income, once you spend it ever comes back?

For most employees, it is zero. This means if they earn N50K per month, they spend N50K per month and nothing ever returns. Their salary is on a one-way street – it comes in through the salary account and ends up in other people’s pockets or bank accounts. They are at the giving end, they always give out and do not receive back. Their only income is their salary and since they have “basket” hands, they cannot hold onto it long enough to do something meaningful with it.

I remember when I was young, my mother used to scold me when I mismanage money. She will ask if money is hot coals burning my hands or burning a hole through my pockets that I cannot find relief until I give it away. Another lesson my mother taught me was that money hates loneliness. If money comes to your house and does not find its cousins or relatives around, it will soon walk. For money to stay, it needs company. I have found this to be true in my experience, in the school of hard knocks. If you dip your hands into your savings, it refuses to grow. You then lock yourself into a save-to-spend cycle, rather than save-to-have.

Why do we find it hard to hold unto money?

Why is there such relief when we finally get to spend it all?
Are we hostile to money?

We have some bank accounts that hardly hold money. Each time money trickles in, it promptly trickles out.

If you have a wealth conversion ratio of zero, that is money only leaves your hands and never returns, it means you cannot become wealthy no matter how much you earn. You will perpetually depend on your salary, and if there is a delay, you are in a financial crisis.

The surest way to boost your wealth conversion ratio is to understand the difference between assets and liabilities and focus on spending on assets. Assets put money in your pocket while liabilities take money away from your pocket. Any item can be an asset or liability. The distinction is in the direction of cash flow. If money is flowing out of your pocket, you have a liability in your hands no matter the item or how much it appreciates in the market.

By focusing on accumulating assets, you increase your wealth conversion ratio, as money spent on assets returns as money back in your pocket via return on investment. Hence the higher the percentage of your income that goes on assets, the higher your wealth conversion ratio.

If you have been wondering where your money went all these years, chances are you have been spending on liabilities