When I’m investing, my first and primary focus is cash flow. Cash flow is simply the income you receive from an asset each month, quarter, or year, minus the expenses required to maintain the asset.
For instance, if you invest $25,000 in a new gourmet food business and receive $400 a month in net income, that $400 is your cash flow. If you pay $20,000 down to purchase a $100,000 rental property, and, after paying the mortgage and operating expenses, collect $100 per month in rental income, that $100 is cash flow.
It’s money that flows right into your pocket.
Why is cash flow important?
Financial independence means one thing to me: FREEDOM.
When I’m financially independent, I’m free to do what I want, whether it’s to have a life of leisure or pursue a new business adventure. I am free to be with people I choose. I’m free to set the schedule I want. My time is truly my time.
Make a choice
Freedom means I have more choices. And I like choices.
If you had a choice between flying coach or flying first class, which would you choose? Most people don’t have that choice. They fly coach because that’s all they can afford.
If you had a choice between eating at a taco stand or a five-star restaurant, which would you choose? It depends on what you’re in the mood for. (Personally, I’d probably choose the taco stand!).
The point is that with financial freedom, you have the choice!
Cash flow = freedom
As long as I have to work, I’m not free. I may choose to work, but that is a very different thing from having to work. If I have to do something every day to generate money to live on, then I’m not free.
Positive cash flow is money that comes in every month whether I work or not. My assets throw off positive cash flow every month, whether I’m working or not. And that money goes straight into my pocket.
My number-one goal is to get more cash flow coming in than is going out for living expenses. When I do that, I’m financially free. My assets work for me, instead of me working for money.