Personal Finance

Personal Finance – Cash Flow Patterns

I was a typical middle-class person ten years ago. I just dreamed of the new car all day long, and when I got the first job, I went to the bank, took a loan and I bought few years old BMW. Would I do the same today? Never! Back then I didn’t know anything about cash flow patterns or compounding. In general, I didn’t know anything about investing.

I must say I was one of those students who graduated from school without financial skills. I was good with mathematics, but unfortunately, they didn’t teach cash flow patterns in college. In the end, cash flow patterns are quite simple, and those should be taught at school. When you understand the fundamental principle behind right patterns, you will become financially educated, and it will help your life, a lot.

The first thing to understand is who you are working for:

Cash flow pattern

You need to know that the assets are the only thing which is working for you or otherwise you are working for somebody else. So, it would make sense to acquire more assets, but what those are?

  • Businesses that do not require your presence. (You own them and they are managed and run by other people. If you work there, it is not a business but a job).
  • Stocks
  • Bonds
  • Mutual funds
  • Income-generating real estate.
  • Notes (IOU’s)
  • You get royalties from intellectual property, such as music, scripts, patents.
  • Things that produce income and have a ready market.

When you now know what an asset is, you need to understand the correct cash flow pattern to acquire more assets. So, what is the right cash flow pattern? Here are the cash flow pattern of poor, middle-class and wealthy:

 

Cash flow pattern
Cash flow pattern of poor
Cash flow pattern
Cash flow pattern of middle-class
Cash flow pattern
Cash flow pattern of rich/wealthy

Like you see from the examples the rich acquire assets which generate more income and with this income, they buy more assets. In the end, they have a money making machine which monthly income is more than their monthly expenses, and they can claim themselves to be financially free.

So, what to learn about these cash flow patterns:

  • Automate your savings (at least 7% of monthly income should go to savings account)
  • Buy ‘income-generating assets.’
  • Don’t follow the crowd. Understand the difference between wealthy and middle-class.
  • Invest in financial education, buy books about investing or attend to courses.

Becoming rich requires a lot of self-control. I have quit smoking, and I have said to many that start to save and quit smoking is in the same level in “how hard this can be”-category. And always remember, it takes time to become financially free, there are no quick ways!

Regards,

Matt

 

Source: Rich Dad Poor Dad by Robert Kiyosaki