Most people complicate the process to generate wealth when the simple secret to making money is positive cash flow.
The secret to generating positive cash flow is the extent to which you pull two levers.
- Lever 1 - Increase your total cash inflow (income)
- Lever 2 - Decrease your total cash outflow (expenses).
It is really as simple as an elementary school calculation. It is a truly powerful concept because when you really think about it, you uncover the profound revelation that you can only increase your net worth when Lever 1 rises and Lever 2 declines.
You only have those two levers to pull!
Common Pitfalls to Generating Positive Cash Flow
An area that trips up people and leads to failure is they try to do something stupid to pull the first lever. An example is when someone borrows a significant sum of money to acquire investments they otherwise could not afford. This is known as employing the use of leverage. Leverage is a double-edged sword. It works wonders when the value of your investments increases. It is a horrendous nightmare when your investments do not perform as projected.
People forget that equity investments fluctuate and down markets are inevitable. Besides, life circumstances change. Bad stuff happens to all of us at some stage in our life. Sometimes this bad stuff occurs at the worst possible time.
Another money-making game pitfall is when people believe the only way to generate positive cash flow is to trade time for money. This mindset leads to dependency upon a J-O-B. People unable to overcome this mindset sit around and wait for a good job instead of thinking of ways to pull one or both of the two levers.
A third pitfall boils down to 'roadkill' risk. Whenever you pull the levers, you must not introduce roadkill risk. This risk is when you risk what you have and need for a little more money and your life will be miserable if things do not turn out as intended. If you are smart, time and compounding will do most of the work to make more money for you.
Your mandate is to:
- ensure more dollars come in than go out;
- continually focus on widening that positive variance.
The greater the positive variance between your cash inflow and cash outflow, the more surplus cash available to deploy to create more positive cash flow.
Be sure to identify which of the two levers you are targeting when you take action you believe will help your family or business make more money. Once done, then objectively measure your success at regular intervals.
In a follow-up article, I will touch upon two questions I ask myself before investing money I have generated from my positive cash flow.
I wish you much success on your journey to financial freedom.
Thanks for reading!
Note: Please send any feedback, corrections, or questions to [email protected].
Disclaimer: I do not know your circumstances and am not providing individualized advice or recommendations. You should not make any investment decision without conducting your research and due diligence.
I wrote this article myself and it expresses my own opinions. I do not receive compensation for it and have no business relationship with the company mentioned in this article.