By Kim Koyosaki
Why cash flow is the surest way to reach your financial heaven
Last week, we talked about the importance of reaching your financial heaven. This week, I want to talk about the two most important words when it comes to planning your investment strategy to reach your financial heaven.
To accomplish your goal of financial independence and infinite wealth, your two favorite words when it comes to money should be: cash flow.
Investments, or assets, generating income for you each and every month, produce cash that flows in every month without you working for it. That cash flow is called passive income. When it comes to investing, the primary focus in building infinite wealth is on cash flow. Why? Four reasons:
1. You can’t save your way to retirement
It’s not easy—in fact, I would say it’s almost impossible— to save the amount of money you will need to retire. Unfortunately, too many hardworking people who were planning on retiring in the next few years are finding out that they cannot afford to do so. Too many people will be forced to work until the day they die.
A better focus would be to acquire the amount of positive cash flow you want per month that will last as long as you own the investment.
For example, when Robert and I retired back in 1994, we did not have a huge amount of money in savings. As a matter of fact, we had very little in savings. Our stock portfolio was almost nonexistent, and we did not have mutual funds or a 401(k).
What we did have was $10,000 per month in positive cash flow coming in every month from our investments, primarily real estate at the time. Our living expenses, on the other hand, were only $3,000 per month. At that point, we were financially free. Our passive income was greater than our living expenses. It wasn’t millions. It was $10,000 per month. That, and more, is very doable for you.
2. It’s good to be in control
I don’t like to invest in things where I have no control, especially when it comes to my money. I am not a stock trader or a flipper (one who constantly buys and sells property). I am not good at timing the highs and lows of the stock market or the real estate market. I’m just not that smart.
I can’t control the markets, but I can control my rental properties and my businesses. The majority of stock shares that Robert and I own are shares of companies we own. Most of my cash flow from my investments is not dictated by the daily fluctuations of the market. And although I may not be able to control the oil production of our cash-flowing oil wells, I can pick up the phone and talk with the owners of the company at any time.
One of the great things about having financial intelligence gained through financial education is that you have the knowledge and confidence needed to invest in assets over which you have control. You know the right questions to ask and the right things to look for. In short, you’re comfortable being in control.
3. You can truly retire
Most people still have to do some sort of side work when they retire. They either don’t have enough saved in their retirement accounts, or they are losing money because of market fluctuations. That’s the problem with relying on capital gains for retirement income.
By focusing on cash flow, however, you can achieve your goal of building up your income to equal or exceed your living expenses, each and every month. Cash flow frees you up to get on with your life and to do what you really want to do. You’re not dictated by the constraints of money.
4. Cash flow breeds cash flow
My first cash-flow investment was a small two-bedroom, one-bath house in Portland, Oregon, in 1989. My monthly cash flow averaged a massive $25 per month. Not a lot, but it gave me my start. And that first step was, by far, the toughest. I wasn’t sure if I could actually go through with it. I had enormous amounts of fear.
But that $25 was much more than a few dollars in my pocket. It was the first building block towards the cash flow I enjoy today. There comes a point in your investing life where the cash flow from your investments supports not only your living expenses but also your next investment. Your cash flow breeds new assets that, in turn, breed more cash flow. It’s a lovely cycle.