Purchase future cash flow to get wealthy…stop buying more stuff
Reverse the cash flow cycle to generate wealth, get off the hamster wheel, and live your best life.
Your cash flow cycle is backward. Turn it around now.
Future cash flow is critical to building wealth. The more income streams the more wealth. Diversification of income is as important as diversification of a retirement portfolio.
One income stream is risky.
There is a risk that you get injured. There is a risk that you get laid off. There is a risk that you hate your job and are miserable.
We call this selling your time for money. It will generate cash for you to live. It does not generate wealth.
Rumor has it that being in healthcare is the most secure job. Today there are stories of doctors getting pay cuts and getting laid off. They wish they had diversified their income.
Times of economic uncertainty should make us question our financial decisions. There is no better time than now for financial discipline.
That new car that seemed like a good idea in February is now a burden. The 5,000 square foot house that you fell in love with is a ball and chain.
You are not managing your cash. It is managing you.
This is a broken cycle of cash flow. You work so you can buy things and you buy more things because you worked, and you have money.
You are the slave. You are at the mercy of your next paycheck and the mercy of your employer.
Don’t confuse cash with wealth. Don’t confuse a high salary with wealth. Cash is how we transfer wealth. The cash flow cycle describes how cash moves in and out.
Wealth creation is not the cash flow cycle. Manipulate the cash flow cycle to create wealth.
You must reverse the cash flow cycle to get wealthy. Purchase future cash flow. Over time your entire income is replaced with the purchased cash flow.
When you purchase things. You get future debt payments.
Cash can generate wealth, but cash is not wealth. Cash must be put to work to generate wealth.
When your cash works for you while you sleep you are no longer a slave to your job. You are not a slave to the debt.
Let’s give an example.
Sam and Mark both finish graduate school and land good jobs. They are both making $200,000 per year. Perhaps they are physicians. Maybe they are in finance.
Their friends think they are wealthy. They both have a high income.
More investigation is necessary to find out if they are wealthy. We know they both have cash coming in and going out.
Sam is a simple man. He enjoys having a beer on the patio with his friends and watching football.
Mark enjoys the finer things in life. He gets his drinks at the cocktail bar and travels to Monaco for gambling trips.
Sam remembers his father saying that many income streams lead to real wealth. He has leftover money after paying for his modest lifestyle. He purchases future cash flow instead of more things.
In his first year of making a high income Sam buys:
- An established website- $3,000
It is a website that provides training to get into Sam’s career. Occasionally same will answer some questions or write an article. The site is making $200/month by sending web traffic to an online course. The website is slowly growing
2. A used vending machine- $5,000
He pays someone to keep it stocked. After all fees, he is making $250/month
3. A beach condo- $25,000 down payment plus mortgage
He uses it twice per year. The rest of the year rents it out on short term home rental websites. He pays a company a percent of collections to run the management and booking. He only oversees. After the mortgage and all costs, he makes $550 per month.
4. Retirement savings- he maxed out his 401k up to his employer’s match. He maxed out a Roth IRA.
This account will grow with tax advantages. Any income from these accounts will be re-invested.
He lives in a nice apartment and drives a decent car that he likes.
So, after 1-year Sam has purchased $1,000 in monthly future cash flow (website + vending machine + beach house). It cost him $33,000. He puts in two hours max per week on these purchases.
Calculating a rate of return yields ($1,000 x 12 months= $12,000 per year) and $12,000/$33,000= 36%.
Is there any portfolio that can generate consistent returns of 36%? Even if COVID is affecting his rental income in the short-term possibly his return this year is 20%? Still a great return.
The income generated will pay off his initial cash investment in under 3 years. Plus, he is building equity in his vacation home that is turned into cash when sold.
This was his first year. Imagine if he does this for 10 years? He would be an expert in buying websites, vending machines, and beach houses.
After 10 years he has $120,000 in yearly income and it still only takes a few hours of work per week. He still lives modestly. He could stop working and live off these cash flow producing investments.
At the same time, he has enjoyed an above-average lifestyle along the way given his high income.
He can afford to increase his lifestyle. He has wealth now. Generating $12,000 per year in future cash flow is only costing him $33,000 per year. The cash continues to roll in from the prior year’s investments.
At this point, he continues to work if he stills finds it enjoyable. The moment his boss is difficult, or he does not find joy he will leave.
Mark took a different path.
In his first year of making a high income Mark buys:
- A BMW- $500 per month
Mark looks good in the car. It makes him feel good when strangers see him at the stop sign.
2. A boat- $500 per month including maintenance
He goes out on the weekends in the summer. His friends are happy he has the boat so they don’t have to pay for the maintenance.
3. A 5,000 square foot home- $50,000 down payment plus $3,000 per month mortgage
Mark hosts the best parties. Everyone likes to come over because he provides the alcohol.
4. Retirement savings- he maxed out his 401k up to his employer’s match. He maxed out a Roth IRA.
This account will grow with tax advantages. Any income from these accounts will be re-invested.
So, after 1-year Mark has purchased $4,000 of monthly payments. He maxed out his retirement accounts this year. He is worried about being able to fund them when he has a family to support.
After 10 years he has even more in monthly payments. His desire for the finer things has not changed. He still funds his retirement and he hopes to retire after 30 years of service. He hates his job and does not like answering to his boss.
Who has more control over their financial destiny? Everyone wants to be Sam, but most are not. You are Mark.
You don’t have to enjoy the finer things and own a boat to be Mark.
Sam is wealthy. Mark makes a high income. There is a difference. Sam purchases future cash flow. Mark purchases future debt payments.
Sam manages cash. Mark’s cash manages him.
Most of us are stuck in the purchasing things cycle. Cash is flowing in and flowing right back out. Debt increases over time.
Stop buying so many things.
Plug the hole that is leaking cash and reverse the flow. Send your cash out to work. Make it come back as future cash flow.
When you purchase future cash flow you become wealthy. When you purchase future debt, you become poor.
The MDpreneur is a physician with an MBA. You can read more articles here or follow on twitter.
