Learn About Cashflow to Set Yourself Free!When you learn about cashflow, you will see how important it is when wanting to retire from the work force and live life the way you want to. Cash flow is a simple term used in the financial world for the amount of money left over after your expenses are subtracted from your income. The more positive cash flow you have, the wealthier you will become. The more passive income you have coming into your budget that generates cashflow, the more free you will become. Cashflow is generated from lineal or passive income sources. Lineal income is income from a job or self-employment that is taxed before expenses are taken out. Passive income sources come from business and investment income such as real estate investments, paper asset investments, business asset income, and from royalties. When you are entering the business and investment side of the money making spectrum, you are looking to diversify. Diversification doesn't mean to put all of your money in real estate or to put all of your money in a "diversified" mutual fund. This form of investing is very risky because you are putting all of your eggs in one basket. When you learn about cashflow, diversification means to keep your money moving in a variety of assets so you aren't dependent on one market source alone. Anyway, the way passive income works is a little different than how your lineal income works. Your passive income is taxed after your asset or business expenses are paid. The advantage of this is that you pay less in taxes because you will be forced into a lower tax bracket by paying your expenses first. This allows you more money left over to apply to acquiring more assets, thus giving you more passive income. When first starting out, you should learn about cashflow to help you build your passive income sources with your lineal income cashflow. You use your surplus from your personal budget to acquire assets. Your key to building wealth is to acquire as many assets as you can. For each asset you own, your economic value increases. If you are working in a job, your economic value is a 1 : 1 ratio (you are one person and can only provide one service at a time). If you own one asset that is earning you money, your economic value is also a 1 : 1 ratio. But as you acquire more income earning assets, your ratio increases proportionally. If you own three rental properties, your economic value is 1 : 3. If you own an apartment complex with 50 units earning rent, your economic value is 1 : 50 (you have 50 passive income sources). When you learn about cashflow, you need to understand the true definition of an asset. An asset is any business or investment that earns money. When you are first starting out acquiring assets, you will probably have a negative or very small cashflow. You may even have to pull from your personal budget to pay for some of the expenses with your assets such as mortgage or investment fees. But as your assets earn money, you pay that money back into your asset or business budget to pay for your resultant expenses related to those assets. To help you learn about cashflow, here's a simple example of a rental asset. If you pay a total of $1,000 on mortgage and $100 for a property manager and receive $1,200 in rent from a tenant, your total cash flow for that rental investment is $100. $1,000 of your rent went back into the mortgage expense, $100 went to the property manager, and you are clear $100 or have a surplus of $100. That $100 should be used to acquire additional assets so you can keep building your portfolio. Once you learn about cashflow and how to supply your personal budget once you earn enough cashflow, you can start backing off of the lineal income sources and fully concentrate on the acquiring of more passive income assets. Learn about cashflow because that is what will set you free in life. Your goal is to have enough cash flow coming in each month to pay for your personal expenses for the rest of your expected life. You can retire from a job well before that point, but you will be free once your passive income exceeds your lifetime earnings required based on your expected lifetime expenses. That is the definition of wealth!
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