Well, it is never fun getting a $2,000 bill out of nowhere. This just happened to me and Kris today. Apparently, hurricane Sally brought with it termites that decided to attack House #2. The good part is that Kris and I have diligently been working on increasing our cash flow throughout the months. This is a good reminder of how important it is to have consistent cash flowing throughout your household. Since we started on our path of financial independence, we have increased the total amount of cash flowing through our home by 4 separate techniques. Because of this we now have $9,000 a month of free cash. Remember, cash flow is the amount of money left after you subtract your expenses from your income. It is never fun to get a $2,000 hit on your monthly expense chart, however, with proper preparation, it will be little more than an annoyance. But, how do you increase your cash flow? I use 4 separate techniques.
1) Pay down debt- Debt is a liability. The liability on your financial statement is your debt producing instrument. For example, your home loan is a liability. The payment of the loan counts as an expense from your income. Therefore, when you pay off your mortgage, your expense goes away and the liability also goes away. Liabilities are different from pure expenses because they have the ability to be paid off. For example, car loans, mortgages, and credit cards can be paid off. Expenses such as the water bill, cable, and the internet can only be reduced. So the first way to increase cash flow is to pay down debt liabilities.
2) Reduce expenses- Expenses are bills such as water, trash, electricity, and the internet. These are hard to reduce. However, there are also some expenses that can be reduced a little easier. These include a cell phone, entertainment (Hulu, Netflix, or Spotify), and fast food. You do not want to put yourself in a situation where you are living like a nomad, but you also want to critically evaluate the importance of what you spend your money on. I read an article that says to try a change of entertainment bills out for a month. If you miss it, then you can keep it canceled. I canceled my Live TV option on our Hulu plan for a month. I did not miss it. So my bill went from $70 to $7. These things tend to make a huge difference.
3) Generate more income- I know, easier said than done. When you generate more income, you want to take the long approach. If you really need the money, then something like Uber or tutoring is a quick fix, but this should not be a long term solution. You want to create a business income source. Business income may take 6-12 months to get started however, it is the purest form of money. You control your hours and how much extra you want to make. But how do you create business income? You have two options, indoor or outdoor. Indoor business is something like the internet (blog, YouTube, Amazon). This also includes baking good, selling fruits or eggs, etc.. For a secondary source of income, I would want to create an indoor business. It may take some time to build clientele, but for convenience, it is worth it. The outdoor business includes lawn-mowing, baby-sitting, delivery of items, finding and flipping antiques, etc.. This is a little more hands-on. However, having a combination of indoor and outdoor income can pay off in spades. Maybe you start a blog but on weekends you go to the flea market and buy and flip items. How about you do this and write about it in a blog? You then have truly mastered the art of being an entrepreneur.
4) But assets- On the other side of the financial statement, next to liabilities, are assets. Assets put money into your pocket or into your income block. For example, rental income goes into your income column throughout the month. When you start to generate cash flow from the above methods, you want to buy income-producing assets. These include stocks that pay dividends, bonds that pay interest, and rental homes that pay rental income. That is why business income is so important. If you make $200 from walking dogs for the week and you buy $200 worth of AT&T stock, that would produce you $15 of annual income (or $1.30 a month) for the rest of your life. That doesn’t sound like much but what if you produced $5,000 of business income that month. If you put it all in AT&T, it would generate $192 of annual income (or $16 s month) for the rest of your life. The goal is to keep doing this until you can live completely off of your investments. That would make you financially independent.
As you can see, there are many ways to create more cash flow for your household. Many people only focus on what they can save or reduce. This is a good start but one of my favorite quotes is,” You can only cut so much before you start to bleed”. This means that, at some point, you have to focus on generating other sources of income. Business income is something most people do not consider. Earned income (from a job) is the worst kind of income because it is taxed at the highest rate. Creating business income helps to reduce your tax burden and allows you to buy assets that produce income. Our retirement plan (Retirement 4-50) is based on cash flow. There are four categories of income, residual work income (pension, 401k, Social Security), investment income, rental income, and business income. My goal is to have each category produce me $6,000 a month in retirement. That would be a minimum of $24,000 a month. When you look towards your life, even if you plan on working until 65-70, you still want to make yourself work-optional. This means to create other income besides your job. This will allow you to know deep down that you can walk out any day you want. This kind of freedom is life-changing.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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