Common Sense Cash Flow Rules

Over the years I have taken many personal finance courses and read dozens of books about money management. The rules of wealth basically boil down to five cash flow rules. These rules are more of a high-level overview of personal finance rather than helpful hints of small things you can do to save here and there (such as clip coupons or make your own lunch).

Cash Flow Rule No. 1: Residual Cash Flow is Better than Linear Cash Flow
It's always nicer to have your money work for you than to work for your money. With residual cash flow, you flow your money into investments that pay you dividends or revenue without having to work for the revenue. Linear cash flow is simply working to earn a paycheck and then spending the money.

Cash Flow Rule No. 2: Time = $
Everyone has heard the expression "time equals money." Assets are what produce money for you. For example, you might own real estate that you rent to tenants and that in turn produces cash flow. Or you might own an affiliate Web site that earns you commissions from referrals. The greater the assets, the greater the cash flow. Feed your assets so that your assets can in turn feed you.

Cash Flow Rule No. 3: Cash Must Be Generated from More than One Source to Become Wealthy
Income must feed wealth-producing assets. To truly achieve wealth, it's essential to direct your current income into other income-producing investments. This way, your money will start to work for you. Also, it's a good idea to have several streams of income, in case one stream suffers due to a disaster, recession or other calamity.

Cash Flow Rule No. 4: You Can't Create More Time, But You Can Buy It Back
Truly wealthy people can buy time. For example, if you can afford it, you can hire people to perform your household duties such as cleaning, landscaping and cooking. The way to know if you can afford to do this is if your per hour income exceeds the amount of money you would be paying to hire your someone else to do it for you.

Cash Flow Rule No. 5:Positive Cash Flow Does Not Depend on Your Efforts Alone
In order to achieve a consistent positive flow of cash, your streams of income must not rely only on your efforts. It's essential to have many seeds planted to reap benefits of positive cash flow. That means that besides working in a job for linear income, it can't hurt to have a side business such as landscaping, in which you send other workers to provide the services and keep the revenue. Another idea is investing in stocks which pay consistent quarterly dividends. The ultimate cash flow generator would be to own real estate that appreciates in time and has a positive cash flow.

There are many aspects to achieving wealth and this article just touched on the high level overview of one facet. The main idea is to make your money work for you!