Financial freedom means something different to everyone.
Some people want to quit their job and have the freedom to sit around in their underwear playing video games all day.
Others want to keep their job, but have the flexibility to fly to Vegas for the weekend and drop a g in da club.
Some want to be able to somehow pay for their kid’s college so they won’t be saddled with debt like so many in this country.
Whatever financial freedom means to you, the way to get there is cash flow.
What is Cash Flow?
It is the money that comes in to your bank account. And out for that matter.
This is very different than your bank account balance or net worth. The cash flow is the rate of change, the velocity. It determines whether you are getting richer or poorer each month.
Let’s Visualize It
Imagine a huge above ground swimming pool that is completely empty. This is your net worth when you start out. You pull out your small garden hose and start filling up the pool. This garden hose is your income from your job.
If you are wise, you will do a calculation and figure out it will take decades to fill up the pool all the way. Better to figure this out now than ignorantly daydream about using the pool this summer. At least now you can do something about it.
There are also some minor leaks in the pool. Those are your expenses. If they get out of hand, you will never be able to fill up the pool. But even with constant attention, you can never stop the pool from leaking a little bit.
How do you spend your time?
Are you someone that keeps trying to plug leaks with little success? This is the person trying to spend less at Starbucks.
Do you constantly shop for a bigger hose? This is analogous to someone looking for a better paying job.
How about connecting more hoses? This is finding additional income streams beyond your day job.
Want to Fill Up the Millionaire Pool?
It’s widely quoted that the average millionaire has 7 sources of income. This means they have 7 hoses flowing into their pool. Some might be small, but when you add them all up, the total amount of water flowing into the pool is impressive.
Most people head to Home Depot and compete over the one firehose for sale. The firehose is the high paying CEO job – everyone wants it and it is incredibly hard to get. You might have to wait in line at Home Depot for years and miss a good chunk of your life just for the shot at that impressive hose.
But the average millionaire does something different. He connects as many hoses as possible and has them all fill up the pool at once.
It might not quite equal the power of the firehose, but you are able to get started much earlier. You’ll have such a head start that you’ll be able to start enjoying your pool while the suckers are still in line at Home Depot.
I Thought This Was a Blog About Rental Property Investing…
Whoa, I really went off on a tangent there. But we’ve come this far, so let’s keep going with the hose analogy!
Investing in a rental property is the easiest way you can get an additional hose. It produces real cash flow every month that contributes to filling up your pool. Even better, this is the type of hose that works automatically.
Some hoses require constant attention for them to keep flow: you have to hand pump the water through the hose. Your job – think that money is going to keep flowing into your bank account if you stop showing up to work?
Rental properties are passive cash flow. You just have to walk over to the side of the house to make sure the hose is still connected and flowing as it should. Barely takes a couple minutes a day.
What Do You Want – A Big Pool or a Bunch of Easy Hoses?
Money is meant to be spent. You aren’t just filling up this pool for no reason – you want to enjoy it.
So you move the portable pool to the sun and jump in. All those Chicken Fights and games of Sharks and Minnows splash some water out of the pool. The warmth of the sun is also evaporating the water. That’s ok, you aren’t trying to die with a full pool!
The classic view of retirement is to fill up the pool as much as possible, then stop hand pumping the job hose. Since you didn’t set up any passive hoses, you don’t have any more money coming in. But you calculated you will be ok as long as you only lose 4% of the water per year.
The cash flow view is to set up some easy to maintain hoses. Most days you can sit around enjoying the pool with the peace of mind that any water you are losing is offset by the hoses still flowing. Every once in a while you just have to make sure the hoses are still connected to the house.
Flip Your Mindset
With the right mindset, you can set yourself up for financial freedom. It’s not about running around constantly plugging the leaks that are your expenses. It’s not about getting the biggest pool of net worth.
Get started now by adding a hose of passive income. Done right, a rental property is the easiest and surest way to do it.