Cashflow 101

The Golden Rule in life is “Do unto others as you would have them do unto you”.

In business, the Golden Rule is “Cash is King”.

Seems like such a common sense thing to say, but it is surprising how many people forget about this basic rule and tangle themselves up in all kinds of financial messes. To be honest, this rule doesn’t just apply in business, but it applies in personal finance as well. No matter who you are, where you are, or what you are doing – if you don’t have cash – you’re not going far. Whether you work part time and have minimal expenses, have a JOB and a regular routine, or are an entrepreneur struggling for liftoff – CASH IS KING.

When people speak to me about their financial aspirations and how they can’t seem to get where they want to be, I usually ask them about very simple things to see if they are aware of (and following) basic rules. These questions revolve around budgets, revenues, expenses, and CASH. Im shocked to see how many people arent even aware of what their monthly expenses are! In my opinion, the very first thing people need to grasp is an idea of what their monthly ‘numbers’ are, and then make some adjustments and a budget right off the bat.

I am also a big believer in paper over plastic. When you get paid – take out the part of your budget you have allocated to spending in CASH and keep it in your wallet/purse – and use that and only that amount until you get paid again. Debit and Credit cards make a whole lot of no sense to me. Debit cards are easy access to money that receives no interest, and Credit cards aren’t even your own money that is borrowed at high interest. PAPER over plastic.

Another great tidbit is PAYING YOURSELF FIRST. Take some CASH and put a set amount away in some form of savings every time you get paid. EVERY SINGLE TIME. Your single most important bill should be your own personal savings. What is more important? Your Rogers bill or your path to financial freedom? If your Rogers bill is really that important – you will find a way to pay it. And besides – they will come looking for the money!

This past Christmas, I asked my wife to buy me Rich Dad Poor Dad by Robert Kyosaki. I admit, I was a little naive and thought it was a very simple book that touched on no-brainer concepts of personal finance. In hindsight – I was right! It is full of no-brainers. The funny thing is that most people aren’t even aware of these no-brainers, and not to say people have ‘no-brains’, but we really aren’t tought how to properly use cash in our everyday lives – and as a result arent even aware of these very basic rules and guidelines to using CASH. In my opinion, people need to view CASH as a tool – or even better – an employee. They need to view CASH FLOW as ‘work that is consistently getting done on their behalf’. The thing is, we spend most of our lives learning how to get an education, a good job and how to work hard to get lots of CASH – but when did we ever learn how to have CASH work for us? I have a degree in business, and I never once learned it! It took a book (from an author who admits that he does not have any incredible writing skills) full of a bunch of no-brainers to make me say “DUH! That makes SO MUCH more sense!”

One of the major lessons Robert Kyosaki touches on is the mindset of the poor and middle class, who work hard and save up to buy toys for themselves (clothes, cars, boats, jewellery, whatever) – which are really just liabilities (items that cost money and earn you nothing in return). Then there is the ‘rich mindset’ that saves up to buy assets (which earn you money) and then use THAT RETURN to buy toys. The difference in mindsets is DELAYED GRATIFICATION. My generation is one that wants everything now. Everything is fast paced, high rolling and instantly gratified – whereas mindsets of discipline, hard work and long-term reward are few and far between. If people can get their heads around the concept of using their budget and CASH as tools to invest in assets that will earn them money, they will be able get out of the vicious circle of increasing debt, more hard work, longer hours, more purchases, more debt, longer hours, etc etc etc. Robert Kyosaki calls this ‘the rat race’. 

A few quick examples: One of my old ING accounts says: “You have earned $700-and-some since becoming a saver!” To me that says, “Here is $700-and-some just for being smart and putting your money here for a while. Go ahead and spend it, and when you get back, there will be another $700-and-some.”

A better example – Investment Real Estate. 3bdrm condo for 170K, mortgage payments, property tax and condo fees for $1000 a month all-in. You purchase and rent out for $1250 a month. You get $250 a month for ‘managing’ the condo. $250!!! – that’s not bad at all! Now if you wanted to buy, say, a new entertainment centre and finance it for $75 a month – well guess what? Your CASH FLOW just ate that bill and is paying for it! Your ASSET just bought you a new entertainment centre!

Fast forward a few years and your monthly $250 ( + legal rent increases over time) and strong budget have been helping you manage your financial affairs, and you have been PAYING YOURSELF FIRST – and all of a sudden you find yourself in a position to purchase another investment property. This time, you are a little smarter, a little savvier, and know how to keep a property in shape and tenants happy. You find a better opportunity that may require a little more diligence and effort, but your reward is now another asset that earns your $300 a month positive CASH FLOW. Now you have $550 a month in passive income to help you along! How much faster are you going to progress to your goals?

Can you see the difference between the ‘Rat Race’ of work-earn-buy-work-earn-buy VS work-earn-invest-buy-grow-work-earn-invest-buy-grow? They are both cycles that take off in a direction and can really shock and surprise you – but one is a path to liabilities, debt, and frustration – while the other is a path to assets, CASH FLOW, and financial freedom.

To learn more about investment real estate, whether it be entry level or not – please don’t hesitate to contact me. I have a consistent client base for this kind of thing – and I would be more than happy to introduce you to how it works on a more detailed level. Consider the professionals in mortgage finance, personal finance, other forms of investment – the process is really deliberate, informed, and successful.

The second step is much easier than the first.

www.MarcEvansRealEstate.com