We hit the jackpot by being born in America. We have the chance to go from broke to rich in one lifetime. Heck, we can achieve incredible wealth in 20 years if we truly try.
Unfortunately, most people will never seize this fantastic opportunity. Not because they didn’t work hard but because their money cycle sucks.
Your money cycle determines how much cash flow remains in your accounts and portfolios. Most of us have little savings and investments and a lot of loans and payments. It’s time to change this dynamic.
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What are the two money cycles? Let’s start at the finish line; the two money cycles are “broke” and “investor.”
The “broke” money cycle looks like this: working, wanting, buying, and owning. It’s a vicious cycle because the more you own, the more you must work.
The “investor” money cycle looks like this: budgeting, saving, investing, and spending. As an investor, you spend your money at the end once your investments produce income.
Now that we know the end result, let’s work our way back from age 18 when we enter the workforce. The sooner we break our bad habits, the sooner we can build wealth.
Life as an Income Investor
We learn to work for money. Right out of high school and college, we want to work hard for money. Our parents worked hard for money, so we want to be independent and prove our worth to society.
We get our jobs and immediately create enough bills to consume our entire paycheck. We are living paycheck to paycheck in short order.
Why do we spend so much and become dependent on our next paycheck? We live in a consumer-first economy. If we earn $7,000/month, we spend $7,500/month because we “want” things.
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If we don’t have “the information,” it seems perfectly natural to rent our own apartment, buy a car, and travel on the weekends. We don’t see a higher purpose for our income.
Working for money drives us crazy. We always think that more money will solve our problems. Trust me; I worked in the workforce for 24 years.
We think the next cost-of-living adjustment, pay raise, or bonus will get us to the promised land of financial freedom—NOT! We don’t understand that financial freedom is a mindset, not an account balance.
As we add more dependents and people (spouses, kids, parents) to our supported list, we must work harder for money.
The American Dream is Passive Income
Instead of working to buy things we want, we only can afford things we need. We fall behind on our bills and payments. Then inflation comes and wreaks havoc on our finances. It’s a mess, and we don’t know how to dig ourselves out of our financial hole.
Changing your money cycle. Our initial money cycle of working and consuming never ends well. The best case is we save 5% into our 401K and finish with $200,000 by age 66. Yet most people never even reach this level of success.
However, the key to changing your money cycle is the word “cash flow.” Our entire mission in life is to increase our cash flow.
Once you understand this simple concept, you will be well on your way to living like the rich. So, what is cash flow?
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Cash flow is the difference between your income and expenses. The bigger the difference, the wealthier you will become.
The cycle of no cash flow. The “broke” money cycle tells you to budget up to your income. For example, earning $10,000/month gives you a $10,000/month budget.
However, you have zero cash flow. As you make more money, your budget keeps increasing—we call this lifestyle inflation.
The cycle of more and more cash flow. The “investor” money cycle creates more and more cash flow. There are two ways to generate more cash flow; spend less on expenses or earn more money.
Homeschooling + Online Business
The first step is to create cash flow between your job income and expenses. If you make $10,000/month, you want to budget for $6,000 or $7,000/month by living below your means. The remaining $3,000/month is your cash flow.
With the $3,000 cash flow, we need to do two things: save and invest. We save for today and invest for tomorrow. The goal is to use the $3,000/month to increase our total cash flow by purchasing assets.
Convert money into more money. Let’s say we put $1,000 into our high-yield savings account. We can invest $1,000 in safe 30-Year Treasury bonds at 4%.
Finally, we can invest the final $1,000 into our income-investing portfolio. We keep consistently saving and investing over the days, weeks, months, and years.
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Along the way, our investments will produce income through interest and dividend payments. Therefore our monthly income climbs from $10,000 to, say, $11,000/month.
The money our investments produce (dividends) is our actual discretionary income. This is the money we can spend without remorse.
What is discretionary income? The “broke” money cycle tells us to spend up to our income level. Therefore, if we earn $10,000/month and our expenses are $9,000, our discretionary income is $1,000.
So we go to the mall and spend $1,000, thinking that we are smart and ahead of the game of life. However, we must work another month to achieve the same $1,000 spending spree. If we stop working, we receive no income.
I’m Obsesses with Money, And You Should be Too
With the “investor” money cycle, we only spend the income from our investments. When you start investing your $1,000/month in dividends, you’ll only receive $20 to $30 in passive income.
Replace employment income with passive income. Congratulations, enjoy your $20 or $30 without remorse or guilt. Learn to savor that small amount of income because you don’t have to work for it again.
Indeed, if you lost your job, you would still receive $20 or $30 from your dividends. You will continue to make money without going into the office. How cool is that?
Very quickly, your $30 will become $300 and then $3,000. My wife and I currently earn $1,800/month in dividends.
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The final goal is to make enough from passive income to replace our employment income ($10,000/month). We can accelerate our wealth building by starting a business and buying real estate, but I digress.
The process of going from broke to investor can take time because it’s an entirely new mindset. Instead of working and buying stuff, you work, buy income-producing assets, and spend the money from your investments.
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Conclusion. You are essentially adding another step (buying assets) into your spending process. It will take 4-5 years to see massive results, but it is fun along the way.
I remember getting $10 in dividends and driving to the gas station to buy some ice cream bars. I wanted to say that my dividends bought me an ice cream bar. It’s an amazing feeling to slowly understand how rich people live.
Set a goal to earn a small dividend income this year (read my “New Year Passive income Resolution 2023”). I would start with $30/month by the end of the year.
This one goal will change your entire life. Hopefully, it will convert you from a “broke” to an “investor” money cycle. Good Luck!
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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. All Right Reserved Military Family Investing
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