Cash Flow - Develop a Positive Flow to Build Wealth!Cash flow is a simple term used in the financial world for the amount of money coming in and out of your budget. The more positive flow you have coming in after expenses, the wealthier you will become. Your budget is comprised of several inputs and outputs. But you must separate your personal budget from your business's budget. When I say business, I'm not talking a major corporation. If you earn money from investments or businesses (passively) as an individual, this is considered business income or investment income. Your personal budget is comprised of income and expenses. Your income usually comes from lineal sources, but you can also earn from passive income sources as well. The way the two filter into your personal budget is different. Lineal income (from a job) goes straight into your personal budget and is usually comprised of after tax dollars. It is applied toward all of your personal expenses, the remaining amount being cash flow, which can be positive or negative. Expenses are broken down into three categories: Fixed, variable, and budgeted. Fixed expenses are your personal expenses that you must pay at a regular and recurring interval that never change from month to month. These are usually set amount expenses such as your rent or mortgage for your personal residence, your auto loan, or other various loans you pay on a recurring basis. Variable expenses are those expenses that have varied amounts month to month but can be estimated or averaged in order to add to your budget. These generally are your utilities, insurance, and credit card payments that vary month to month. Your budgeted expenses are your general living expenses for the month. These include fuel for your car, groceries, clothing, medical bills, entertainment, fun, and other expenses that help improve your quality of life. Those these amounts vary greatly from month to month, by simply adding set amounts each month to your budget, you can easily master your total outgoing monies each month in order to apply more surplus to your assets. After you calculate all of your lineal income and subtract your three categories of expenses, your resultant is your surplus or deficit for the month, otherwise known as your cash flow. Your goal is to have a surplus or positive amount left over and as long as you don't have a deficit, you are okay. A surplus is defined as how much money is left over from your budget after all expenses are paid. A deficit is defined as how much you spend in excess of your income. Both terms are used to evaluate total cash flow. The goal for your budget is to have all of your cash flow generated from passive income sources to pay all of your personal expenses. At that point, you won't have to work at a job or self-employment ever again. This is when you can retire from the work force.
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