Tuesday, January 12, 2010

Cash Flow Rules

1. Never Run Out of Cash.
Running out of cash is the definition of failure of your financial plan. Make the commitment to do what it takes so it doesn't happen to you.

2. Cash Is King.
It's important to recognize that the basics of cash flow is what keeps your finances alive. Manage cash flow with the care and attention it deserves. It's very unforgiving if you don't. Remember, cash is king, because no cash means no options in life.

3. Know the Cash Balance Now.
What is your cash balance right now? It's absolutely critical that you know exactly what your cash balance is. Even the most experienced person will fail if they are making decisions using inaccurate or incomplete cash balances. This is fundamental cash flow 101. That's the reason why failures are not limited to amateurs or people new to the finance world.

4. Passive Cash Flow is Better than Employment Cash Flow.
It's imperative to have your money work for you, rather than to work for your money. With passive cash flow, you invest your money into real estate and paper investments that pay you positive monthly income without having to trade your labour for money. Cash flow from employment is simply working to earn a pay-check and then spending the money.

5. Time = Money.
Everyone has heard the expression "time equals money." Assets are what produce money for you. For example, you might own real estate that you rent to tenants and that in turn produces cash flow. Or you might own a dividend paying stock that pays you a quarterly income. The greater the assets, the greater the cash flow. Feed your assets so that your assets can in turn feed you. Our economy today is an asset based economy. There person with many assets will have the greatest financial security.

6. Cash Must Be Generated from More than 1 Source to Become Wealthy.
Income must feed wealth-producing assets. To truly achieve wealth, it's essential to direct your current income into other income-producing investments. This way, your money will start to work for you. Also, it's a good idea to have several streams of income, in case one stream suffers due to a disaster, recession or other calamity. Remember, if you want the new big screen television, invest your capital into dividend producing stocks or investment real estate and use the profits from the asset to purchase the consumer goods.

7. You Can't Create More Time, But You Can Buy It Back.
Truly wealthy people can buy time. For example, if you can afford it, you can hire people to perform your household duties such as cleaning, landscaping and cooking. The way to know if you can afford to do this is if your per hour income exceeds the amount of money you would be paying to hire your someone else to do it for you. If your portfolio of assets produce a passive income of greater than your existing employment income, you can “retire” and buy all your time going forward.

8. Positive Cash Flow Does Not Depend on Your Efforts Alone.
In order to achieve a consistent positive flow of cash, your streams of income must not rely on your efforts. It’s essential to have many seeds planted to reap benefits of cash flow. That means that besides working in a job for employment income, it can’t hurt to have a side business as landscaping, in which you send other workers to provide the services and keep the revenue. Another idea is investing in stocks which pay consistent quarterly dividends. The ultimate cash flow generator would be to own real estate that appreciates in time and has a positive cash flow.

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