There is a gap between the wealthy and the poor that can’t be fixed with money. The gap is more so mindset rather than money. The rich and wealthy invest their money in cashflow assets to grow their wealth, while the poor and middle class spend their active income on liabilities. This is because the poor and middle class lack the education from our school system on how to grow wealth and manage finances. With the revolution of learning and teaching in this new internet age, the secrets of wealth can be learned by reading a few books and doing a couple of Google searches. The reoccurring thing that is always talked about by wealthy people and online educators on platforms such as YouTube is cashflow. Cashflow is the act of making your money work for you. Putting your money in investments that grow that money exponentially over time will help you reach and sustain wealth. “What kinds of cashflow assets are out there and how do I get them?”, you may be asking. There is a lot, and we will go into depth on some of the best ones based off my biased opinion (I’m not a financial advisor. Contact one before making any financial decisions). However, we first need to understand that cashflow will not get you rich overnight. There is no get rich quick way to wealth. Building wealth takes years of work and investment compounding over time. It takes an adoption of a whole new mindset that needs to be fined tuned. It is by no means easy, but, as they say in the book The Richest Man in Babylon, “Where the determination is, the way can be found”.
What is cashflow and where can I find it?
When you invest in something, you are typically looking for two things. These two things are cashflow and appreciation. When you invest in real estate for example, you are buying a property with the thought that the property value will generally go up over time due to appreciation. While this differs in different areas, it can be said that throughout the course of history, real estate has always been an appreciating asset, and the value has gone up consistently and reliably. The other component to this is cashflow from real estate. Each month, a tenant or tenants will pay you rent to live in your investment property. After expenses are paid and money is saved for repairs, what you are left with is cashflow. While cashflow may not give you an exorbitant amount of money per month, the accumulation of cashflowing assets will allow you to multiply your monthly passive income to levels that you should be able to quit your job and live off of it if you choose to. Real estate is just an example of cashflow however, and there are many other methods of investing in ways that will give you this cashflow return. If you want to learn more about real estate investing, check out our recent post here, and stay tuned for more real estate posts coming soon!
Stock market dividends
Investing in the stock market is portrayed as a get rich quick scheme by many gurus on the internet. While this does happen occasionally, most of the people who get rich quick don’t have their money for long because they usually don’t have the mindset of wealth. The average trader may have good returns one day, and terrible ones the next. At the end of the day, day traders and the like usually perform at the same pace as the rest of the market or below where the market is performing. The point of me saying this is just to emphasize there is no get rich quick bs that works! It is all about mindset, sound principles, and acquiring more assets. With that being said, there are great ways to invest in the stock market that give you cashflow just for owning stocks. These are called dividends. They are offered by individual companies and funds such as ETFs. The dividend yield for the average sound stock investment is usually between 2%-5%. This may not sound like much, but over time it can accumulate enough that you could live off of your cashflow and not have to sell any of your stock. Picking individual stocks may be difficult, and if you aren’t going to be actively managing your investment portfolio, I would recommend investing in high yield ETFs. ETFs are funds that do the work of investing in the stock market for you, and there are different funds based on your goals for investing. If your goal is cashflow, there are high yield ETFs. If you want to take a little more risk but want more upside, there are growth ETFs, and so much more. For our purposes to get good cashflow passively, investing in a high yield ETF such as VYM may be a wise investment based on your goals (Again, do your own due diligence and contact a financial advisor). Depending on your goals and risk tolerance, there are tons of quality ETFs out there to choose from and invest in, and this is a topic I would love to cover more in depth in a later post!
Earning Interest from Cryptocurrency
Many people have differing opinions on cryptocurrency and its value as an asset class, but one thing was made clear to us about crypto in the last few years. It is here to stay. This may not be the asset class for you and that is okay, but at least understanding some of the opportunity it presents will make you a better investor. The value of crypto is fairly speculative and can fluctuate, but what a lot of companies have started to do is pay interest on your cryptocurrency holdings. Similar to the concept of a bond, your crypto is lent out and paid back with interest. This makes crypto sort of into a pseudo cashflow asset because you are earning a yield based on your holdings in crypto. Companies like Gemini have initiated programs such as Gemini Earn in which they pay interest for when you allow them to hold your crypto assets through their platform. This is a tried and tested concept with the use of bonds, and it is now being applied to the crypto asset class. While this can be one of the more volatile assets to hold, it is definitely worth considering adding to any portfolio especially because of the ability to now earn interest on your earnings.
Reinvesting or keeping cashflow
Cashflow can be a great way to compound wealth. You can reinvest cashflow and grow your portfolio in whatever asset class you choose. In the stock market, this can usually be done automatically. In my brokerage account, I have my dividend yields automatically set to be reinvested in that stock in the hopes this will compound my wealth over time. This is a tried and tested method that has proven to help reach success. Living off cashflow is also very common to do. Real estate cashflow allows you to collect monthly checks from your tenants, and when enough investments are accumulated it can reach or surpass your active income. The limits to cashflow assets are boundless. The more you are able to invest, the more return you will get. Do not expect any sort of exorbitant returns, but rather consistently positive ones over time. Start your cashflow journey and build your wealth today!