There is no better way to make money than with a consistent, ever-expanding, source of income.
I talk a lot about investing, and for good reason – this is the critical step in growing to a state of financial freedom.
However, the only way you can achieve financial freedom is through consistent income, whether that is from a job (at first), or the revenue from your business.
There is no way you can make enough money to be considered “financially free” without getting recurring deposits in your bank account.
If you get an inheritance from your grandfather or uncle, that’s great, you should invest that, but you shouldn’t plan to live off of it. Your job is far from over.
That’s because an inheritance is a one-time payment. Sure, your “net worth”, whatever that means, will spike up, but at the end of the day, that money will end. Where will you be when it does?
Net passive cash flow is a much more valuable indicator of wealth than net worth.
Net worth is basically useless as we enter into the 21st century – it’s a number used to massage the egos of wealthy individuals, and is used as bragging rights in between groups of wealth.
Let’s look at how net worth is traditionally calculated.
Odds are you are not married yet at this young age, so let’s assume for tax purposes, you are single.
Say you have a car that’s worth $5,000, an investment portfolio worth $7,500, a savings account worth $1,200, and other assets (Playstation, Computer, TV, etc.) valued at $2,500. You make roughly $24,000 per year at your part time job.
Let’s also say you’re a trust-fund kid (no college tuition), and your expenses are $1,800/mo. Your net worth, as traditionally calculated, would be:
($5,000+$7,500+$1,200+$2,500+$24,000) – ($1,800 * 12)
Your traditional net worth would be $18,600 USD.
However, this is wrong. This doesn’t represent anything of actual value. It doesn’t show you how you will survive on a month-to-month basis, and it doesn’t account for the real value of your material assets.
Who determines the value of your car? Your Playstation, computer and TV? Are you planning to sell those?
So let’s calculate by a more realistic indicator – net passive cash flow. You have $2,000 per month coming into your bank account, with $1,800 per month of expenses. That now means that the amount of money you have coming in the door that you can invest is $200. That’s a big jump from $18,600!
A commitment to growing your monthly income, either through your business, or if you’re not ready to commit to taking the entrepreneurial jump, your job, is the biggest thing that can lead to financial freedom.
Take this hypothetical scenario for a second. Let’s say you found a painting you really liked, but couldn’t afford it. You loaded it on a credit card. Fast-forward 30 days, what happens when you can’t make the payment?
Is it an issue that you bought an item that was too expensive?
It’s not an issue that you bought an item you liked – it’s because you didn’t make enough income in that month to cover that payment. That’s a 100% preventable issue.
The only way you’ll make enough money to buy that painting, that car, that thing you want more than anything, is to increase your income. We’ll talk about increasing your income by adding multiple income flows in a later blog post.
What are your monthly expenses? $1,800? $2,400? $3,700?
Jeff Bezos, one of the richest men alive, earns $2,400 every single second, whether he’s awake or asleep. And there’s not a whole lot of difference between him and you.
Sure, he may have a “smarter” mind, but he’s still the same sack of flesh, bones, and blood that you are. He’s just one that solved a smaller problem, and turned it into a bigger problem. (He started with books, now he sells everything).
95% of your time should be focused on generating income in any form. To really commit to a life of financial freedom, to achieve that goal of retiring early, or to get that expensive thing you really want, you need to commit to generating income.
Of the time you spend on your financial career, only 5% should be dedicated to expenses. The rest should be towards thinking about how you can make the most money possible, invest the most money possible, and achieve a path to financial freedom the fastest.
“I don’t view wealth as something that validates my intelligence.” – Steve Jobs