Beginners Guide to Cash Flow
Did you see the first YoungAdultSurvivalGuide.com Passive Income Report last week? I am so excited to share my goals with you and allow you to follow along.
One huge component of making passive income is understanding cash flow. Robert Kiyosaki, author of Cash Flow Quadrants, wrote a whole book about cash flow.
Most business’s use a cash flow statement to analyze where the money is coming in from and how they are spending month to month. I use the principles of cash flow for my personal finances in the exact same way.
What is cash flow?
Cash flow is the money that flows in and out of your bank account each month. You make money and spend money. To have a healthy cash flow, it makes sense that you need your income and spending to balance. Hopefully you have more income than spending, if not you are operating in the negative.
Are there different ways to have money coming in instead of a 9-5? Yes..
Why is cash flow important?
The reason cash flow is important is because when you have a healthy cash flow, you can cover your bills and still live the life you want. Breaking down your monthly cash flow will give you a true depiction of how you can live month to month.
The reason it is important to break your income down monthly is because most people pay bills monthly, rather than yearly. You know you make x amount each year, then your bills come out each month, and you are scrambling hoping it all adds up. Monthly budgeting is crucial to your success, because it gives you a monthly guide to ensure you have a healthy cash flow.
If you don’t have a budget use this free template.
4 Ways to get cash! (The Good stuff)
There are many different ways to get cash monthly. The obvious, get a job and work. However, there are other ways to get money that intrigued me. In Robert Kiyosaki’s book he outlines the 4 different quadrants where you can make money. Currently, I am working on the B and I quadrants to produce cash. See Picture Below
Employee – You trade your time for money and work for someone else
Self-Employed – You trade your time for money and own your Job
Business Owner – Other people work with you to make money and you own a system
Investor – Your money works for you and you own investments
Currently you may be in the Employee segment only and that’s ok. However, it is important to understand that there are different ways to make money.
For me, I am shifting my focus onto the B and I category (Business Owner and Investor). I want to get to the point where I don’t have to trade my time for money, and I can do things I enjoy like helping others reach their goals.
Can you think of ways you can create and own a system?
Creating a blog was the first step to creating and owning a system for me. A system where I can help people reach their goals and make money doing it #Win/Win.
Also, learning to invest was a big change for me. Up until this point in my life I was either saving or paying off debt. Now, I am in the position where I can take calculated risks and explore the other quadrants.
My goal is to not trade my time for money and focus on things I enjoy. I do enjoy public speaking, one thing I would trade my time for is speaking to audiences about money and goal setting.
Do you trade your time for money?
It may sound weird...
When I first started exploring this new concept it was foreign to me too. Another book that helped me understand business systems and automation more thoroughly was The 4 Hour Work Week by Tim Ferriss, I highly recommend it.
As you can see, understanding cash flow is vital. Money comes into your possession and leaves every day. Understanding the different ways to make money, and how to track your spending/income, will set you up for future success.