Infinite Wealth: Not As Hard As You Think
I have met many people who have millions in their retirement accounts and still feel insecure.
Because their savings is money generated from their job or business. They often have the money invested in a retirement account, but know little to nothing about the subject of investments.
If that money disappears and their working days are over, what do they do then?
In times of great economic change, there are always great transfers of wealth.
Even if you don’t have much money, it’s important to invest in your education. When changes come, you’ll be better prepared to handle them. Don’t be caught unaware and afraid. No one can predict what will happen, so it’s best to be prepared for whatever happens.
Unfortunately, most people choose the path of job security. When the economy starts wobbling, they cling ever more desperately to job security and wind up spending their lives pursuing it.
A big secret is that true investors make more money in bad markets. They make their money because the non-investors are panicking and selling when they should be buying. I’m not afraid of the possible coming economic changes, because change means wealth is being transferred.
The definition of wealth is the number of days you can survive without physically working (or anyone else in your household physically working) and still maintain your standard of living.
For example, if your monthly expenses are $5,000 a month and you have $20,000 in savings, your wealth is approximately four months or 120 days. Wealth is measured in time, not dollars.
By 1989, my wife Kim and I were millionaires. Although financially successful in some people’s eyes, we still hadn’t reached our goal of true financial freedom. But by 1994, Kim and I were wealthy indefinitely because the income from our investments was greater than our monthly expenses.
Ultimately, it’s not how much money you make that matters, but how much money you keep, and how long that money works for you. If you focus on investing for cash flow, you can create an infinite wealth number.
Invest for Cash Flow
When I’m investing, my first and primary focus is cash flow. Cash flow is simply the income you receive from an asset each month, quarter, or year, minus the expenses required to maintain the asset.
For instance, if you invest $25,000 in a new gourmet food business and receive $400 a month in net income, that $400 is your cash flow. If you pay $20,000 down to purchase a $100,000 rental property, and, after paying the mortgage and operating expenses, collect $100 per month in rental income, that $100 is cash flow.
It’s money that flows right into your pocket.
Cash flow is not a goal only in real estate. When I invest in oil, I invest for cash flow. I do not care if the price of oil goes up or down as long as the cash keeps flowing in.
Many people invest in stocks for dividends, which is another name for cash flow. From my books and games, I receive royalties, another form of cash flow. Different words—dividends, interest, royalties—yet they all mean the same thing: cash flow.
My rich dad said, “Don’t ever forget that if you invest for cash flow, you’ll never worry about money. Invest for cash flow, and you will not be wiped out in boom and bust markets. Invest for cash flow, and you’ll be a rich man.”
As long as I have to work, I’m not free. I may choose to work, but that is a very different thing from having to work. If I have to do something every day to generate money to live on, then I’m not free.
Positive cash flow is money that comes in every month whether I work or not. My assets throw off positive cash flow every month, whether I’m working or not. And that money goes straight into my pocket.
My number-one goal is to get more cash flow coming in than is going out for living expenses. When I do that, I’m financially free. My assets work for me, instead of me working for money.
The next crisis would be worse than anything we’ve ever seen in America.
Create Infinite Wealth
Those who are financially free never have to work a day again in their lives—if they so choose—because their assets provide enough cash flow income to cover their expenses.
The good news is that the strategy that Kim and I use can apply to any investment through infinite returns or as I call it: money for nothing.
Keeping this overly simple, I’ll use the following for an example.
Let’s say a property costs $100,000 and my down payment is $20,000. If I receive $200 net monthly cash-flow income after all expenses (including the mortgage payment), I have a 1 percent monthly return on my investment of $20,000. That’s a 12 percent annual return or $2,400 per year (ROI is net income divided by the down payment.)
Our investment strategy is to get that $20,000 back and continue to receive $200 a month. Once the $20,000 is returned, the ROI is infinite.
To most people, $200 a month, a 1 percent monthly return, looks sickly, certainly not exciting. Yet if you own 100 of these small deals, that is $20,000 a month in cash flow. And 1,000 properties is $200,000 a month. That is more money than most doctors and lawyers make in a month.
When Kim started out, her goal was 20 units. She accomplished that in 18 months. Once she had her 20 properties, she sold them tax-deferred. With her tax-deferred capital gains, she purchased two larger apartment houses, one 29 units, and one 18 units.
Today, following the infinite-return formula, she has nearly 3,000 apartment units, commercial buildings, a luxury resort, and five golf courses—all with positive cash flow.
Editor, Rich Dad Poor Dad Daily