Excerpt 2 from Wealth Is Good. Cash Flow Is Better©

Some important principles…

• "80/20 Rule"
  

  In general, 80% of your overall financial situation is determined by only 20% of financial items. For example, 80% of your Net Worth is determined by 20% of your Assets and Liabilities. You have many smaller Assets (appliances, dishes, furniture, etc.) and smaller Liabilities or expenses (energy bills, transportation costs, etc.); these are important and we will address them, but they don't have nearly the same impact on your overall Net Worth as do a small number of high-impact Assets and Liabilities like a house or a 401(k) retirement account. So that’s what you should focus on first, and that’s what we will include in your 8020 Worksheet™.
  

• Some assets are better than others
  

  Assets that grow in value, or appreciate, are better than those that depreciate. For example, homes generally appreciate but cars depreciate or lose value.
  

• Some liabilities are better than others:
  
  • As a general rule, you should reduce your liabilities because doing so increases your net worth.But a loan to acquire an appreciating asset can help you increase net worth in the long run.
  • Loans to acquire a depreciating asset are not as beneficial. In some cases such liabilities are a necessary evil (for example, to buy a car) but you should try to minimize the damage! For example, don't buy an unnecessarily expensive car.