What Exactly is The Cash Flow Lifestyle and Why Is Cash Flow So Important?
As I originally explained in 2011 with What Would You Do With A Million Dollars, the United States went off the gold standard officially in 1973. In short, the US Dollar was no longer backed by gold. Instead, the US dollar was merely ‘worth’ whatever the US Government said it was worth.
When the US and the Allies won WW2, the Bretton Woods conference put the US in a position unseen before in the history of society. The result was that the world, minus the US, was destroyed and needed rebuilding. The US lent all the major countries money forcing all major countries to tie their currencies to the US Dollar, which at the time was backed by actual gold.
Not after 1973. As a result of the Vietnam War, and decades of not having to worry about fiscal policies that made sense, the US was in a position where it needed to create more money that we had. Since money is simply the belief in a system that essentially isn’t ‘real’ anyway, who was going to question us?
So why does this matter? Well for you, it means everything you have been taught about money is outdated and wrong. Maybe not everything, but for the sake of arguing lets just start over from the beginning and go from there.
The world we live in now punishes savers and rewards investors. Example? Too Big To Fail rewarded all the greedy wall street crooks and punished you. (Click Here for an INCREDIBLE book on this story.)
The world we live in now rewards people that borrow money. Yes, if you borrowed money to buy 4 houses you couldn’t afford in 2006 you were punished, but that was dumb because you should never buy something you can’t afford. But if you have debt at a fixed interest rate, it gets cheaper over time, just like your savings gets cheaper over time if its not tied up in an income producing asset like stocks or rental real estate.
Mutual Funds are a terrible investment. Most people invest in mutual funds because they have heard of them before and they like the idea of choosing between “aggressive and moderate” instead of putting thought behind where their money goes. But why are they so well known? Could it be because mutual funds spend a lot of money promoting themselves? Where does this money come from? (Click HERE for a GREAT book on this topic written by Tony Robbins.)
The Government raises money by selling bonds, then repays them by printing money. This is the simplest way to understand the current system. No, we won’t ever default to China because we can just print more money and pay them off. Other countries don’t have the luxury as their money is tied to ours, and because oil is also priced in US Dollars.
So what does it all mean?
If you have savings in a bank account, you are losing about 3% of its value every year to inflation. if rapid inflation hits, which is pretty likely given how much money we have been printing since the recession, then your savings will be hit even harder.
If you are investing in a mutual fund and ‘have a guy’ that manages it for you, then you are in the same position as a savings account but with more people charging you fees.
What should you do?
Focus on your cash flow. Focus on more money coming in than going out every month. You don’t have to start the next Facebook or Uber, but you should consider businesses and projects that can generate a few hundred or thousand dollars a month for you.
The greatest tool that every American has for building wealth is access to a primary mortgage as I explain below:
(Also, read this when you have time: Investing in Stocks vs. Real Estate)
Your primary mortgage is the best loan that you can get and is secured by an asset. You have to live somewhere and its important that you own your residence. Some residences are better than others when it comes to investing, but we are speaking in generalities for the time being.
When it comes to your savings and retirement, stop thinking big pile of money, and instead think of income stream.
How can I make more money next month than I made this month is a question I ask myself every month. Even if its just a few more dollars, every little bit matters.
When I invest in stocks, I look for stocks with dividends.
When I invest in real estate, I look for cash flow rentals.
When I start a new business I ask myself how long do I need to work on this until I can walk away and have it still produce income?
The Problem With Trying To Save A Big Pile Of Money:
- How big of a pile of money do you need?
- Is this pile getting bigger while you sleep, or if you are sick, or if you are traveling? Or is it getting smaller because of inflation and people charging you fees?
- What is your end goal? To retire and start spending money from this pile? What if you out-live your pile (which should be a good thing) or what happens when you get older and your cost of living actually rises so your pile shrinks faster than you thought?
- Is your solution to turn that big pile of money into income at retirement? Why wait? Why not start now? How much income will your big pile of money produce anyway? What if you found a way to produce that with passive income so that your pile never gets smaller and you could retire sooner? This is The Cash Flow Lifestyle!
- Focus on your passive income! Passive income is money that comes in every month for work you have already done. This can include:
- Pay Yourself First! As long as you pay yourself first and invest that money for future you EVERY month, you can then spend what is left over. Budgeting sucks, and study showed that even financial planners don’t budget. Its too hard. Instead, as long as you pay yourself first you are free to spend what is left over. If nothing is left over, then shit, don’t spend anything that money and work harder for next month.
- Invest in Yourself! We live in the most incredible time right now. All the information you could ever want is available to you for free. Well, mostly free. You still need access to the internet which can cost money as well as a computer or smart phone, but guess what? These can be investments! Don’t be stupid and buy things you can’t afford, but also don’t skimp on things that could help you get better, smarter and eventually wealthier. (Start here: (Cash Flow Resources)
- Never Stop Educating! It doesn’t matter how old you are, school never ends! If you have a job you need to know everything about that job so you can get better, then more valuable and eventually invaluable! You do not need to go to an actual school to do this, the skills matter more than the degrees. (Read: How Much Is Too Much To Spend On Knowledge?)
- The Power of Compounding Is Your Salvation! Whether its your personal life where you decide to make better decisions with your health and money, or your financial life where you commit to investing in dividend paying stocks for the next 20 years. (For better life choices and the impact they will have on your life read: The Compound Effect by Darren Hardy
What’s the point of all this?
The old way doesn’t work anymore. Relatives that lived through the Great Depression urged saving because they know what can happen when times go bad. But that was before 1973 when dollars yesterday were worth the same tomorrow.
Now you need assets. Preferably income producing assets.
If your goal was to save $1,000,000 so you could ‘invest’ it and return 5%, that means $50,000 a year or just over $4000 per month. How long would it take for you to save one million dollars? Assuming nothing went wrong, whats your best case scenario?
By the time its saved, what has inflation done to it? Assuming a best case scenario of 3% a year for X years, how much value is that one million dollars really?
Then assuming all this went as planned, how are you going to turn your million dollars into $50,000 a year? Are you just going to give it to someone and hope for the best? Is he going to charge you? (Yes he is) How much? Will he pay you if he loses your money? (No he isn’t)
If this doesn’t sound that exciting to you then you aren’t alone.
If you are ready for a lifestyle change then you aren’t alone.
You do not need to be an expert to start investing, but you must start investing if you ever want to build wealth.
Do you want to build wealth?
- Sign up for FREE weekly updates with The Cash Flow Weekly
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Or keep doing what you have been doing and keep getting what you have been getting.