It’s time for another journal about life, love, and the pursuit of happiness. Welcome to your Happy Cash Flow Retirement; I am glad you are here.
But how did we get here? What does it mean to have a Happy Cash Flow Retirement? What steps can you implement today that can guarantee your success tomorrow? Let’s begin.
What is a Happy Cash Flow Retirement? A Happy Cash Flow Retirement (Part 1, Part 2, Part 6, Part 7, Part 8, Part 9, Part 10) is when you are work-optional and have multiple income streams to help you enjoy your life.
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It may seem like a lot, but I’ll break everything down into small chunks. The most crucial part is ensuring every penny coming into your house has a job, while your job is to have fun. Here are the four components of an HCFR.
- Building the correct mindset.
- Living below your income by budgeting.
- Keeping a fully-funded emergency fund.
- Creating multiple streams of income.
Building the correct mindset. The most crucial part of your HCFR is building a mindset of abundance versus scarcity.
An abundance mindset says there are enough resources for everyone to have what they need. You must exercise extreme grace and thankfulness to live an HCFR.
We wake up every day happy, thankful, and proud of the life we created for our family. We are truly living the American dream (minus fancy cars and mansions). Reading books, articles, and essays about retirement is the best way to build an abundance mindset.
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You’ll find that most retirees successfully live on small amounts of money, avoid debt, and have paid off their homes. We will do the same. Avoid social media as it is a window into many bad things in the world.
Living below your income by budgeting. Now for the technical information about building an HCFR. The first step is to decide how much you need to run your household. The smaller the number, the faster you achieve success.
Let’s say you need $5,000/month to run your household. You would want to aim for $6,000 because you always need at least $1,000 of unattached or “free” cash flow.
Similarly, let’s say you can safely withdraw $8,000/month from your 401K. You will want to live on $6,500 to ensure you have $1,500/month in cash flow.
Cash flow is the difference between income and expenses. The wealthy person generates a ton of cash flow. Therefore, you can directly control how much cash flow you create inside your budget by living below your means.
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“But Josh, I want to live large during retirement!” I understand, but the budget is the heart of any operation or household. The goal is to keep your fixed expenses (mortgage, utilities, food, personal allowance, debt) as low as possible.
You are ready for the next step once you create cash flow from your income. You may need to move to a small city or new country to generate the required cash flow. A good goal is to have 25% of your income free as cash flow.
Keeping a fully-funded emergency fund. Retirement can be intimidating because you are leaving the safety of a paycheck. For years, we lived under a steady paycheck and employment situation.
Retirement is the exact opposite; it is the wild wild west of income. However, we bring order to our retirement by building a fully-funded emergency fund.
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The goal is to have one year of expenses (the amount you need to run your household) in a high-yield savings account. So, if you need $6,000/month to run your household, your emergency should be $72,000.
The good news is that you can take a few years to build your emergency fund. You can use your “unattached” cash flow to build your fund monthly. If you receive any lump sums of money, you can add those as well.
An emergency fund is there simply to give you peace of mind. If there is a problem with your home or social security check, you have the funds to survive as you fix the issue. It is an insurance policy for your life.
Creating multiple streams of income. Now for the best part—becoming wealthy! Most retirees stop before they hit this point. They receive $5,000/month and live on $4,500/month.
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Where’s the fun in that? How about living on $5,000/month but earning $10,000/month? The end goal of a Happy Cash Flow Retirement is to have so much free cash flow that you can create your dream life. Here’s how.
Let’s say you require $6,000/month in household income for retirement. You earn $7,000/month. You have already saved $72,000 for your full-funded emergency fund. What do you do with the extra $1,000/month in income?
This is where you learn how to invest your money so it can make more money. You can do this by purchasing dividend-paying stocks on the stock market.
Let’s say you purchase $1,000 of the PIMCO Dynamic Fund (PDI) closed-end fund every month, which currently yields 13%. You would add $10 to your income every month because PDI pays a monthly dividend.
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After ten years, without reinvesting your dividends, you would have created an additional $1,300/month in dividend income. If you reinvest, this number would be much more significant.
But that’s not all; you can create multiple streams of income in various other forms. You can focus on your creativity by writing books, releasing music, recording on YouTube, or starting a podcast.
It’s important to remember that you don’t need to make a ton of money from these creative endeavors. You already live an extraordinary life from your income and budgeting prowess.
You can also earn additional income by renting properties, renting rooms, renting your car, starting a garden, or selling baked goods.
I would say the goal of any endeavor, outside of dividends, is to earn enough to take yourself to a fancy restaurant every month.
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For example, I earn roughly $200/month in royalty income from Amazon book sales. I could take my family to a decent restaurant every month.
If you want to make a large amount of money from home, you can trade options, start a consulting business, or become a tutor.
Conclusion. How cool would it be to live on $6,000/month but earn an additional $4,000/month by consulting online for 10 hours a week?
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The entire premise behind a Happy Cash Flow Retirement is not to become stagnant and live on a fixed income. You want to keep your budget tight so you don’t suffer from lifestyle inflation.
Once you start seeing a ton of additional income in your accounts, you can use that to travel the world or be generous to your children.
But it all starts with having an abundance mindset and a tight budget. Then, you add multiple streams of income that are there purely to provide entertainment and joy in your family’s lives.
Think about it this way. Imagine you go to an all-you-can-eat restaurant and fill up your plate perfectly. You have everything you need to be happy on your plate.
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Then, someone comes by and drops twenty of your favorite desserts on your table. You have more than you can ever consume so that you can pass the extras to family and friends.
In this scenario, ensuring you can fill your own plate is the most critical part. Once you have that, more and more desserts (income) will come your way.
How can you build a Happy Cash Flow Retirement? If you are 30 to 40 years from retirement, the key is finding your monthly budget NOW.
The sooner you know the exact amount you need to live, the sooner you’ll exit the rat race and build your Happy Cash Flow Retirement. Good Luck!
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