I’m excited to say that my second book, Cash Flow Your Way to Wealth, is fully written and going through the first edit. It should be coming out in a couple of months. To give you a taste for what this book will be about, I’ve provided the introduction below.
Introduction
Most people have the opportunity to become wealthy within their lifetimes, just using the income they have from their jobs. The reason that few do is because of the way they handle their money once they earn it, also known as how they setup their cash flow. Their whole lives they setup and maintain the cash flow of a middle class person, or even the cash flow of a poor person. People who will become rich and stay that way have setup the cash flow of a rich person. Even if you were to take all of the wealth accumulated by the wealthy people away, they would be wealthy again in a few years because of the way they have configured their cash flow. Likewise, if you gave the poor or the middle class people a bunch of money, in a few years they would be back where they were again because of the way they setup their cash flow. Knowing how to setup the cash flow of a rich person is the key to becoming wealthy, regardless of your income level.
The term “cash flow” is often used to describe the amount of money passing through your fingers each month, and many people say that the reason they cannot improve their financial place in life is because their cash flow is too small. But your cash flow is also how money flows into, through, and out of your life. This is the definition we’ll use in this book. Everyone has some sort of cash flow, regardless of their income. Even if you don’t deliberately configure and control your cash flow using a cash flow plan, you still have one.
Most people have a cash flow that is exactly balanced – every dollar that comes in goes out. In fact, many people don’t even see their money at all since their checks are direct deposited and their bills are paid automatically. They just know that their lights don’t typically get shut off, so things must be working. The issue with this sort of cash flow, however, is that it is extremely fragile. Any disruption in your income stream will result in the light bills not being paid and your lights being shut off.
The purpose of this book is to help the reader develop a different sort of cash flow. One that causes wealth to be built over time. Very quickly (in less than a year) an individual with this sort of cash flow will be protected from minor disturbances such as a missed paycheck or an unexpected expense like a car repair. Within a few years the same individual will be protected from major disturbances like a job loss with a couple of months spent finding another one. After a couple of decades, financial independence can be built – that magical state where one no longer depends on a job to pay for basic bills and put food on the table. In other words, financial security.
To understand the different kinds of cash flow, picture a large canyon. A water source flows into this canyon from one end. For some people it is a small creek. For others it is a moderate stream. For others it is a raging river.
Many people would see the raging river and think that the individual who owned that canyon would never run out of water. Truth be told, most people we think of as rich do not necessary have a rich-person cash flow, but instead are individuals with a raging water income. These are people who are NBA stars with multi-milllion dollar deals, rock stars, brain surgeons, and Wall Street financiers. They probably drive Lamborghinis and Ferraris, live in huge homes with maybe a servant or two, and are always going on lavish vacations and out to the finest restaurants.
Those in the middle class would have a moderate stream income. Many of them would drive late model cars, but be limited to SUVs and maybe a lessor luxury-brand like a Lexus. They would stilll eat out a lot but usually at the moderately priced chains with perhaps a spurge on a nicer restaurant once in a while. They would have nice homes with large yards and granite counter-tops, but nothing like the mansions owned by the raging water set. While they would not have as much water flowing through their canyons, you would still not expect them to run out of water very easily and expect the stream to always be flowing.
Those in the working class would have a creek flowing into their canyon. It would be steady, but nothing excessive. They would drive older cars, live in modest homes or apartments, and generally need to watch their money carefully to cover everything. At times the creek may slow and even dry up for a period of days. If you were living with a creek income, not being able to afford the things you need would be a concern.
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The truth is, however, that all of these individuals are equally vulnerable. All of the water flowing into the canyon flows right back out. Even for the individuals with the raging river income like a movie star, if there is a disruption in the flow of water coming into the canyon – like if someone builds a dam upstream (a job loss or an injury), they could very quickly be in trouble.
Now picture the same canyon with the same water source flowing into it, but now place an earthen dam at the downstream end. Now the water does not all flow out instantly – water starts to rise in the canyon, forming a small pond, then a small lake. Obviously the water level would rise a lot faster for the individuals with a raging river flowing into their canyons, but even those with just a creek would see water building up over time.
Now, these individuals are protected somewhat from an interruption in their income stream. When the water stops flowing for a period of time, depending on how far their canyon had filled with water before the interruption, they would have some buffer before they ran out of water. The amount of time they had would depend on how many holes they had in their dam – how many expenses they had each month.
Individuals who become wealthy – truly wealthy – build dams at the end of their canyons. They also limit the number of holes in their dams and work to increase the water source coming into their canyons. In fact they build additional feeder streams into their canyons, called assets, that build upon themselves to increase the flow over time This causes their canyons to fill with water and become large lakes from which they can draw and never worry about running out of water because of the feeder streams replenishing any water that they remove.
In this book you’ll learn how to manage your cash flow to build a dam at the end of your canyon. You’ll learn how to increase your income by adding feeder streams, assets, that will increase how much water is flowing into your canyon. You’ll learn the investments that you must make to pay for important things like retirement. And then you’ll learn how to set yourself up to never need to worry about money again. It all starts and ends with a cash flow plan.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.
, I covered a lot of the information on how to invest, including what the different types of assets are (stocks, bonds, mutual funds, warrants, LEAPs, REITs, and options) and what the risks are when you purchase these assets. It also covers how to use investing, along with management of your money from work, to grow wealthy and have a good chance of becoming financially independent by the time you are in your mid to late forties, assuming that you start right out of college (or even in high school).
to learn about this very sound investing method). The way to have a chance to outperform the markets with individual stocks is to find great, growing companies and then plan on holding them of a long time, through good times and bad.
or one of the other books below (just click on the image).
When you take a concentrated position, it means that you buy a lot of shares in just a few stocks – you are concentrating your money in just a few places. Many of the books you read or people you’ll hear on the radio will say that doing that is a bad idea – diversification is what you want. The issue with diversification, however, is that it dooms you to getting the market returns at best. It means that even if you’re a good stock picker, you’ll be buying the stocks you really like, plus a lot of other stocks you sort of like. If you want to beat the markets, buy large amounts of just a few companies. Just be sure you also put a good portion of your money into a set of mutual funds as well in case you turn out not to be a good stock picker.