You may have noticed that the posts are a little less frequent than they have been in the past. This is because I’ve been working on a new book, Cash Flow your Way to Wealth, that I’m hoping will be done and published in a month or two. In the mean time, here is a preview:
Introduction
Most people have the opportunity to become wealthy within their lifetimes. The reason that few do is because of they have the cash flow of a middle class person, or even the cash flow of a poor person. People who become rich have the cash flow of a rich person. Knowing how to setup the cash flow of a rich person is the key to becoming wealthy, regardless of your income level.
Cash flow is how money flows into, through, and out of your life. Everyone has some sort of cash flow, regardless of their income. And most people have a cash flow that is exactly balanced – every dollar that comes in goes out. In fact, many people don’t even see their money at all since their checks are direct deposited and their bills are paid automatically. They just know that their lights don’t typically get shut off, so things must be working. The issue with this sort of cash flow, however, is that it is extremely fragile. Any disruption in your income stream will result in the light bills not being paid and your light bill being shut off.
The purpose of this book is to help the reader develop a different sort of cash flow. One that causes wealth to be built over time. Very quickly (in less than a year) an individual with this sort of cash flow will be protected from minor disturbances such as a missed paycheck or an unexpected expense like a car repair. Within a few years the same individual will be protected from major disturbances like a job loss with a couple of months spent finding another one. After a couple of decades, financial independence can be built – that magical state where one no longer depends on a job to pay for basic bills and put food on the table.
To understand the different kinds of cash flow, picture a large canyon. A water source flows into this canyon from one end. For some people it is a small creek. For others it is a moderate stream. For others it is a raging river.
Many people would see the raging river and think that the individual who owned that canyon would never run out of water. Most people we think of as rich are individuals with a raging water income. These are people who are NBA stars with multi-milllion dollar deals, rock stars, brain surgeons, and Wall Street financiers. They probably drive Lamborghinis and Ferraris, live in huge homes with maybe a servant or two, and are always going on lavish vacations and out to the finest restaurants.
Those in the middle class would have a moderate stream income. Many of them would drive late model cars, but be limited to SUVs and Lexuses. They would stilll eat out a lot but usually at the moderately priced chains with perhaps a spurge on a nicer restaurant once in a while. They would have nice homes with large yards and granite counter-tops, but nothing like the mansions owned by the raging water set. While they would not have as much water flowing through their canyons, you would still not expect them to run out of water very easily and expect the stream to always be flowing.
Those in the working class would have a creek flowing into their canyon. It would be steady, but nothing excessive. They would drive older cars, live in modest homes or apartments, and generally need to watch their money carefully to cover everything. At times the creek may slow and even dry up for a period of days. If you were living with a creek income, not being able to afford the things you need would be a concern.
The truth is, however, that all of these individuals are equally vulnerable. All of the water flowing into the canyon flows right back out. Even for the individuals with the raging river, if there is a disruption in the flow of water coming into the canyon – like if someone builds a dam upstream, they could very quickly be in trouble.
Now picture the same canyon with the same water source flowing into it, but now place an earthen dam at the downstream end. Now the water does not all flow out instantly – water starts to rise in the canyon, forming a small pond, then a small lake. Obviously the water level would rise a lot faster for the individuals with a raging river flowing into their canyons, but even those with just a creek would see water building up over time.
Now, these individuals are protected somewhat from an interruption in their income stream. When the water stops flowing for a period of time, depending on how far their canyon had filled with water before the interruption, they would have some buffer before they ran out of water. The amount of time they had would depend on how many holes they had in their dam – how many expenses they had each month.
Individuals who become wealthy – truly wealthy – build dams at the end of their canyons. They also limit the number of holes in their dams and work to increase the water source coming into their canyons. This causes their canyons to fill with water and become large lakes from which they can draw and never worry about running out of water.
In this book you’ll learn how to manage your cash flow to build a dam at the end of your canyon. You’ll learn how to increase your income. You’ll learn the investments that you must make to pay for important things like retirement. And then you’ll learn how to set yourself up to never need to worry about money again. It all starts and ends with a cash flow plan.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.