Why Cash Flow?

Why cash flow?  The goal of the typical financial model is to accumulate a pile of cash.  It is akin to climbing a mountain, where the journey to the top is all about creating a lump sum.  At the top, you’re hoping the lump sum generates enough income to live the rest of your life.

This is the typical retirement model of thinking, and here’s why it often doesn’t work.

It’s very difficult to build a pile of cash large enough such that you don’t run out of money.  It’s so challenging due to risks like inflation, taxes, interest rates, market risk, loss of principal, and longevity risk.  All of these risks can require you to cut back your lifestyle, or work longer than you had planned.

The typical model of financial planning leads to one end goal: to generate cash flow during your later years to accommodate the lifestyle you want.

Why Cash Flow Today?

Whether you focus on creating a pile of cash or streams of cash, both have an end goal of future cash flow.

If your financial freedom goal is $10,000 of monthly cash flow, we can work that backward and reverse engineer it.  Let’s answer the question, why cash flow today?

Let’s say you have cash flow in your current life of $1,000 a month and you have been setting that aside in an opportunity fund.  You then use that to invest in a cash-flowing asset, generating an additional stream of income.  We’ll say $3,000 of income a year.

You repeat and invest in additional cash-flowing assets.  Because you’re increasing your cash flow, you have more money to put to work.  Not to mention that over time you will also build equity, which you could use to accelerate this process.

Financial freedom is when you have enough cash flow coming from assets to cover your expenses.  You’re in a position where you have freedom of choice to do what you want to do with your life.

Realizing that the end goal of all financial planning is future cash flow opens up your mind to think differently about being in control of your financial life.  You’re ready to answer the question why cash flow today, and create the financial destiny that you really want.