Financial literacy is essential to achieving our dreams because it shapes how we view a financial situation or opportunity. Here is a simple example.

Mary has been in network marketing for twelve months. She has been very careful not to spend any money on her business and reinvest only a portion of her profits. She talks to people she meets and her friends and family when she can. Her commission check is $100 per month and she has no expenses or overhead.

Susan, on the other hand, figures out from watching the top earners in her company that if she can recruit a hundred new distributors personally in her first year, she has a very good shot at earning $10,000 per month within twenty-four months. How is she going to find that many people to talk to? It dawns on her that she has to do some advertising. She figures out that she will need to invest about $2,000 per month on Internet leads to have enough people to present to in order to recruit a hundred people in the first year.

The question is, should you invest in leads, like Susan, or play it safe, like Mary?

Let’s start with a basic principle of financial literacy: an asset is something you purchase that can bring in future income. A liability is something you purchase that takes money out of your pocket with no future return.

Susan decides to go for it. She figures she has to secure a $30,000 credit line to fulfill this plan in one year. Like many beginning network marketers, she does not have any savings, so she decides to take out a second mortgage on her house to see her plan through. This is a little scary for Susan, as she has never before taken a risk like this. On top of that, her friends and family (none of whom are earning anything even close to $10,000 per month) keep telling her not to do it and that she is being reckless.

The next lesson in financial literacy is: Risk = Reward. Risk is always commensurate with reward. If you do not feel some type of fear or trepidation, you are not growing. When you see people living their dreams—the nice houses, cars and lifestyles—know that they invested risk in some part of the economic formula.

What is the formula? Capital + Labor = Output. People who get results usually invest massive capital (money), labor (work) or both to get high output (income). The good news is that in network marketing, there is hope for those who cannot invest massive capital, because what you lack in capital you can make up in labor (talking to people). The only thing you pay for in network marketing is convenience, ease and speed.

Let’s take a closer look at Susan’s situation: she works a full-time job to make ends meet. For one year, she will have to come home each night and do calls for several hours to make her plan work. If $2,000 per month buys her 600 leads, that means she has to call twenty people each night. This may yield two presentations per night (calls where she actually gets to present her business and products and get a yes or no). Of the sixty people she presents to each month, twelve will sign up. This routine gives her enough of a cushion for vacations, distractions, etc., so no matter what, at the end of the year she will have personally recruited a hundred people.

Out of those hundred, twenty will play the game in some capacity, but three will be her “builders” who will propel her income to $10,000 per month by the end of the second year.

Now the key question: How many $10,000 commission checks does Susan need to pay off $30,000 debt? Answer: Just three!

Here’s what is even more exciting: Susan has created an income-producing asset that will continue to pay her residual income. How much money would Susan need to have in savings to get $100,000 of annual return on investment? Approximately $2,000,000 (at 5 percent interest).

In just over a year, Susan was able to risk some capital and labor, and produced the equivalent residual income of a $2,000,000 asset. The $30,000 equity in her home is something that was not making her any money. It was a hidden asset that she used to create a bigger asset. This is why the rich get richer. They consistently buy assets (in this case, advertising) and then use the equity in those assets to add more income-producing assets.

Many billionaires have hundreds of millions of dollars in debt. “What? I thought they were rich.” That is how they got rich. In many cases they have used other people’s money to expand their asset base, i.e. bank loans, issuing bonds, going public and using the public’s money to expand their business massively. Many of the people on the Forbes 500 list of Richest People in America are worth $2 billion, but have $1 billion in debt. How is that possible? They have used a billion dollars of other people’s money to create or obtain $3 billion worth of assets. The difference between the value of their assets and liabilities is their equity or net worth.

A great disservice is done to society when people are told that debt is bad and that you should pay off your debt. Consumer debt is bad. Business debt can be very profitable. If you use a credit card to buy a TV, which will not make you money (liability), that’s bad debt. If you use a credit card to buy advertising to increase your business and bring you more distributors (asset), that could be a good debt.

The key is that you have to add work and consistency. Only then will you see the big payoffs.

THOMAS J. HAYES started his network marketing business at
age seventeen to earn a living while attending Columbia University.
By age twenty-nine, he had become a self-made millionaire and built a
large network all around the world. At age thirty, he continues to expand
his business globally but also has become an adept investor. Tom and his
wife Kaitlyn reside in Ridgefield, Connecticut in their dream estate Belle Rêve.