What is cash flow? I honestly believe your views around this question tell the story of your finances. Cash flow is one of those things that few understand. But once you understand how it affects your wealth, you'll see how you can tweak your finances to find yourself on the positive end.
I learned this from Rich Dad Poor Dad. In simple terms, cash flow is the movement of money coming in and flowing out. So you can see why this topic is important because it all deals with how long your cash stays...well, your cash.
Let's use real estate for an example. Let's say that you own an apartment complex and that investment earns you a net income of $5,000 a month. That $5000 is cash flow because it is flowing to you on a monthly basis.
Now, some confuse cash flow with capital gains. The difference is that capital gains is a "one time thing." Let's say that you have a piece of property that you bought for $80,000 and you sell it for $100,000.
Your capital gains is $20,000. That amount of money is not entering your bank account on a weekly, monthly, or quarterly basis. It's a one time thing. What is cash flow? It's not capital gains.
Keep in mind that not all cash flow is positive. If you have negative cash flow, that's not a good thing.
Let's say that you earn, on a monthly basis, $8000. But, when you combine all of your expenses (i.e. mortgage, car payment, credit cards, alimony, etc.), they add up to $11,000. You are negative $3,000 per month.
You are in negative cash flow. Wonder how you are surviving? It's probably on credit cards or loans where you are incurring interest. This is a slippery slope and it can get bad fast.
So the goal here is to get positive...and I'm talking about cash flow. Focus on getting what's coming in to be greater than what's going out on a monthly basis.
Now that you understand what you are working with here, there are two ways to tackle this negative problem.
Sometimes an increase in salary isn't possible. But, there are other things you can do to increase your salary.
Real estate is often a popular way to earn extra income. Although, often risk involved in any real estate deal. I've been burned on real estate deals before. I've learned that real estate is not my cup of tea.
But, if you have a knack for properties, this is a really good way to earn some money if you have the time and resources to do so.
Another way to increase your income is to earn or make online money. You can start an online business where you provide services or even start a blog were you add content and sell ad space.
In my opinion, the risk is much lower, you can virtually work from anywhere, and you can put up a website in minutes.
The fastest way to burn a candle is to burn it from both ends. While you can increase your income, I bet you that you can double your efforts by decreasing your expenses.
It's much easier to cut expenses rather than scrounging for extra cash. Well, I'll say that it's logically easier. Emotionally, you might be a wreck cutting the expense of pedicures or the weekly casino night.
We often make our purchases based on emotion. Take emotion out of the equation and it'll be easier to cut the expenses that are frivolous and damaging.
"What is cash flow?" isn't the question you should be asking. Sure, it's important to know what it is. You should be asking: "Am I positively or negatively cash flowing?" Answering this will give you a better picture of where you are financially.
So try this. Create a budget using our budgeting tools. See where you are earning money (and other potential income) and where you are just wasting cash.
I recommend doing this even if you are positive cash flowing. There isn't a better feeling knowing you are saving...and you can save even more.
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