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What is Cash Flow Part 2
This is my 2nd What is Cash Flow article focusing on how to smartly use money from positive cash flow to achieve a better lifestyle, or applying that money toward shorter term goals.
Being able to regularly indulge in fine dining, enjoy a sport that cost money, such as golf, or monthly facials are all examples of common short term goals. Think of them as lifestyle goals; they make life better in the near term.
Now back to What is Cash Flow….and what does it have to do with your lifestyle?
You’ve probably experienced that wonderfully abundant feeling that comes from having more money flowing in than out in each month; that’s positive cash flow. The real kicker is how you choose to use that “extra’ money.
The primary step of building wealth goes back to creating positive cash flow, unless you are blissfully blessed with a huge inheritance, large annual bonuses or windfalls from selling a business or real estate. Even so, positive cash flow needs to happen by getting income from those windfalls unless your wealth is so large it will never be depleted from spending it.
You’ll most often hear the phrase “cash flow” associated with cash for running a business, but it’s also super important for individuals. Here we’ll relate it to your personal wealth.
Since money is something to be enjoyed along the life journey instead of one great big “retirement account” at some far off date in the future, the money from positive cash flow can also be used to achieve goals that are near term to enhance your lifestyle, depending on your priorities.
To use some of your excess cash flow money to achieve lifestyle goals, you may want to consider investments that generate income to help accomplish that. With the income from those investments, you’ll receive cash that can be used to fund better living, or short term goals, while leaving your investments intact. Here are some examples of investments that increase income.
- Real estate rental properties that earn more rental income than they have in expenses
- Small business ownership that is profitable and paying out income, including your own business
- Bond interest, although it is low without additional risk
- Stock dividends, which is also low without additional risk
- Option strategies that create income, such as covered calls
Of course, there’s a lot more to be known about each of these investments before putting money in them. Never put your money anywhere without a full understanding of the potential gain and related risks. And remember, as a money coach, I never, ever advise, only enlighten and inspire you to make confident and smart decisions.
Having said that, notice that these investments generate income, as opposed to investments that increase in value to achieve long term goals, also called “capital appreciation” or “growth investments” in financial lingo. This is a huge and primary factor in making an investment decision, as covered in my previous What is Cash Flow post.
The really great bonus with the real estate and small business ownership investments is that they almost always come with tax benefits, which increases your positive cash flow even more by lowering a normally huge expense.
So, the investments described above are possibilities for what you can do with that “extra” money from positive cash flow to enhance your lifestyle for the many people are looking to live well off of their investment income. Increasing income happens when you put your money to work for you with investments that pay you. It all goes back to your goals, priorities and time frames; define them and then live from that place of desire.
P.S. If you haven’t yet gotten clear on your long and short term life and money goals, and your time frames, you can have fun doing that in an impactful way with my Rich Life Manifesto™ here. It’ll be the smartest $7 you’ve ever spent!