Cash vs Cash Flow, Wealth Trap #1
Hello, and welcome to the Creating Epic Wealth Show, the revolutionary new money show disguised as a real estate show. As real estate, it’s the final frontier where the average person has a legitimate shot at creating epic wealth. I mean, you really just don’t have a chance at any sort of financial freedom unless you incorporate real estate into your financial plan, and if you just don’t have the time to do it, or maybe the desire to take on all that heavy lifting, then this is the show for you. This is real estate investing for busy people.
My name is Matt Theriault, real estate investor and fund manager. Nice to meet you. A bit about me: when I got out of the Marine Corps a while back, I spent the next 15 years of my life or so in the music business at a very small independent hip-hop record label with major label distribution. I did pretty well for myself until the digital download turned that entire industry upside-down and, in six short months, I found myself bankrupt, divorced, and bagging groceries for $7 an hour. I had no plan B.
But, I knew whatever my next venture would be, that plan B was going to have to be lucrative. Because after going from a 7-figure lifestyle to a $7-an hour job, all I wanted was my money back. I wanted my life back. After about six months of soul-searching, the answer came to me from the most unlikely source. It came from the grocery store manager who, coincidentally, was the same age as me. He showed me what he was up to in life, and he was just a few years away from retiring from the grocery store. He had started working when he was a teenager, and along the way, he had managed to acquire a half dozen apartment buildings churning off a passive income that exceeded his monthly pay from the grocery store. His investments were making more each and every month than he was going to work for.
An entirely new world opened up to me through that conversation. At that very moment, it was just like my world was never the same. It was very much like The Matrix. The hero of the story, Neo, is given a choice by his mentor, Morpheus, between two pills. You’ve got the blue pill and the red pill. Now, the blue pill allows him to go back to his normal, boring, unchallenging, regular life. The red pill, that’s going to result in Neo learning some hard truths about reality, but ultimately, help him reach his full potential and live a more fulfilling life.
I’m about to give you a similar choice. So, choose wisely. And if you do, your life will never be the same. I want to help you create a new road map that’s going to actually serve your dreams, that’s going to make those dreams a reality. This road map can get you from false security to freedom much quicker than how you’re probably going about it. If you want to escape the drudgery of the rat race forever, there’s a choice that you’re going to have to make, and that choice is to shift your focus from saving piles of cash to creating streams of cash. If you can make that choice just one time and follow through on it, financial freedom will soon be yours.
The irony here is astonishing. The core concept of saving for retirement is to accumulate enough money so that it pays you enough of a residual income from the interest so that you can live the rest of your life without having to work. That promise motivates us to work and save, work and save, then work and save some more for 40, 50 years. That’s a 40-50 year plan. Then, one day, we hope we end with that huge pile of cash that’s going to generate the substantial cash flow that’s going to do the trick. It’s all about the number of dollars saved to generate the monthly number of dollars that we need per month.
Take a financial giant — ING, for example. They promote their services with that famous slogan: “What’s Your Number?” What is that number that you need to retire? That’s a good slogan. I love that slogan. But, we’ve been looking at the wrong number, the wrong side of the equation. We’ve been focused on the number of dollars in the bank, or the fund, or the 401K, how much we’ve saved. Of course, the financial power is to promote this strategy. Of course they do this. It’s a winner for them. They make a ton of money off your money. The more money they have of yours, the more money that they make.
Now, that’s the important number to them. That’s why they promote that number: how much you save. The important number to you, though, is the cash flow you receive every month without having to trade your time for it. The cash flow you receive from that number. We make a mad scramble to have all this money piled up, but what we really want is the cash flow that it’s going to generate. So, instead of focusing on the pile, like the $1.2 million that analysts that we need to retire comfortably, how about focusing on the $4,000 of residual income that that big pile of money is supposed to generate? Not that $4,000 a month is comfortable, but that’s what that would generate. $1.2 million would generate, in today’s climate, $4,000 a month, approximately.
So, instead of focusing on the 1.2, let’s focus on the 4,000. Forget about the saving of 1.2 million. Forget about that number. It doesn’t matter. And you’re highly unlikely to ever accumulate it in your life, anyway. Did you get that? I mean, it should click just like that. Did you see that? That shift, it creates a whole new realm of possibilities. I mean, which sounds easier to you? Saving in the realm of $1 million, or creating the $4,000 of monthly residual income? Given that almost nobody ever stashes away nearly as much as a million dollars for retirement, the $4,000 starts to look like the viable alternative.
If you’re still uncertain about this, trust me. Follow me. It is. In fact, the average person, with the right mindset and just a little bit of know-how, can realistically create $4,000 of monthly residual income in four years or less. Think about that. 99% of the population isn’t achieving that much cash flow in 40 years of saving money. I’m saying that you can do it in a tenth of the time with this shift in mindset, and it’s going to be more secure at that, and you’re going to be in control.
So, if it’s that much easier, if it were that much better, why don’t more people do it? Well, there can only be three reasons. Either they’ve never heard of such a concept, or they have heard of the concept, but they don’t know how to actually do it, or they just don’t believe it will work. Well, I’m here to let you in on the secret and show you exactly how to do it. If you don’t believe me, I don’t care. I’m going to prove it to you though.
The difference between piles of cash and streams of cash is profound. You’ll likely not be able to make any more progress until this concept is indelibly etched into your brain. Once you have a real grasp on this concept and start applying it for yourself, you’re going to begin a swift journey down that path to financial freedom. This path is going to open up a whole new way of thinking and living, instead of the drudgery of exchanging time for money. People who buy it at this concept wake up every day with a focus on creating systems that will make money work for them, and then once their residual income exceeds their expenses, the accumulation of assets and the creation of wealth are essentially automatic. Then your time is yours and you can go to work, or you can go fishing.
Now, because it is the best vehicle, I’m going to use real estate to further demonstrate the power of cash flow versus the power of cash. One of the many advantages of real estate is that it can produce income in basically two very powerful ways. Real estate can produce large amounts of cash through short-term strategies like fix and flip and wholesaling, and it can also produce smaller amounts of monthly cash flow through long-term strategies like buy and hold and lease options.
For someone with a saver’s mindset, a $30,000 cash profit, say, from a fix and flip deal, is always going to be preferred over a buy and hold deal that cash flows just $300 per month. Someone can be thoroughly committed to the idea of earning residual income, but most people are so ingrained with the saver’s mindset that they just can’t resist the big cash payouts that real estate offers.
Imagine I’m sitting next to you and I offered you a pile of $30,000, or I gave you $300 per month of cash flow, which one would you choose? Would you take the $30,000 cash, or the $300 of monthly cash flow? Society’s accumulator training tragically leads wealth seekers to dismiss the value of the cash flow, thinking that they could just go do another deal and add to their pile of cash. They’re going to continue to exchange their time for money, always looking for that next big payday.
But, you can’t blame them. $30,000 feels like you’re progressing. That feels like you’re profiting and you’re moving forward. Taking the $300 is counter-intuitive, isn’t it? It doesn’t seem to make sense on the surface, and this is a really good example that demonstrates why so few people become financially free. Because, when you have the real world scenario, which one are you going to choose? When the left hand has $30,000, and the right hand has $300 of cash flow, most people take that $30,000. They think it’s the right thing to do. But, the fastest path to freedom is the path that chooses the $300 of cash flow, and I’m going to demonstrate why.
What ING is doing right now is advertising approximately a 1% interest rate on their money market account. The reason I’m applauding that 1% is because it’s just about the most generous savings account available today to the average consumer. Now, the money invested there, it’s safe, it’s secure, and it’s insured by the U.S. Government as well.
Let me ask you. To create that $300 of monthly cash flow we were talking about earlier, how much would you have to save in that ING account to create $300 of cash flow? You’d need to have $360,000 in that account. That’s right. You need to have more than the large majority of people are able to save in a lifetime in that account just to achieve a monthly sum that is probably not even enough to buy a month’s worth of groceries. You see, $300 of cash is worth $300 of cash, right? $300 of cash flow, however, is worth more than $360,000 of cash sitting in the most generous savings account available at the moment. That’s the difference. Even if they make great money, the saver would have to make that $30,000 on that fix and flip, they’d have to do that fix and flip 10 times over to safely earn enough to create the cash flow in that ING account than if they had just chosen the buy and hold deal, that one buy and hold deal for $300 of monthly cash flow.
Now, you might be thinking that, “$300, that sounds great, but it’s not going to pay the bills, Matt, right?” That amount is probably not going to make any great lifestyle changes available to you. It’s not going to impact your life, really, in any significant way. But, that being the case, what amount would? What would impact your life? Would $5,000 a month do it? Or, maybe closer to $10,000. Let’s go with $10,000 and let’s just do the math. Do the math there and you realize that you’re going to need to accumulate $12 million of cash in that ING account to create $10,000 a month of cash flow. $12 million of cash. Now, that is a pile of cash.
Now, given that $12 million is probably not even a possibility for you, can you see that the $10,000 of cash flow is probably going to be a much easier road to travel? It’s going to be much easier to generate to create that stream of cash. You’re thinking, “Well, wait a minute. What do you mean $12 million is not a possibility for me?” Well, here’s what I mean. If you got started right now and stashed away an extra $20,000 a year — whatever you’re earning a year, just subtract 20,000 from that, and put that away — how long would that take you to get to $12 million? It’d take you 600 years to do.
Maybe you’re fortunate. You’ve got a great job, you have a great income, and you can afford to pile up $20,000 a month. Even then, it would take you 50 years to have enough. You’d likely be too old and worn out to enjoy your financial freedom anyway. But, hey, “What’s your number?” right? Here’s the deal. You aren’t going to get to financial freedom if you keep traveling down the savings and accumulation path. But, generating $10,000 of monthly residual income, now that right there, that is possible. If you change your mindset, decide on freedom, and then take the actions that are correlated to that mindset, it’s not only possible — I’ve got good news for you — it’s probable.
Now, when it comes to generating cash flow, income, or residual income, passive income, there are actually many different ways to do that. Maybe you can write a book or produce music that’s going to result in royalties. Maybe you could own any number of businesses from storage facilities to parking lots, vending machines, Laundromats, a franchise, or maybe even get involved in the right network marketing company. I hope that you choose several paths to passive income. The point is that passive income is a must. That monthly number needs to become your focus, not that number that you need to save.
When it comes to cash flow, of all the ideas that I just shared with you and all the ideas that I’ve explored to produce cash flow, the one that I know of that’s the absolute surest is real estate. And that’s why I say at the top of the show, this is a money show disguised as a real estate show, because if you want to generate cash flow, you want to generate financial freedom. Real estate, that’s the easiest and surest path to get there, and there’s multiple reasons and we’re going to go over all of those during this show.
What you’ve got to do is shift your focus from saving piles of money to creating streams of money. Make that one choice just one time and you’ve multiplied your journey to financial freedom by 10.
But wait…there’s more?!
Epic Wealth
This post has been adapted from the Epic Wealth podcast. Click here to listen to see the full show notes page for this episode.
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About Matt
Hi! My name is Matt and I’m the guy behind EpicRealEstate.com. I am a fifth-generation California native and Desert Storm Veteran (USMC) and have worked as a full-time real estate professional since 2003. After building a small real estate empire with hardly using one dime of my own money or one point of my own credit (mostly because I was lacking in both), I have discovered that I have a knack for simplifying the complicated, implementing systems and producing desirable results for myself and others.
