10 Steps to Positive Personal Cash Flow
The key to being able to save and invest is having positive personal cash flow. The best approach is to have multiple sources of positive cash flow, not just your paycheck. This is often called "making money while you sleep" and it really is possible! You just have to start small, be disciplined and patient and don't get discouraged! Each one source individually might not amount to much - maybe only $50 to $100 per month, but when you add them all up it can be a lot of money and can help supplement what you bring home on your paycheck. If you're really successful, it can ultimately replace your paycheck and you can become Financially Independent and Retire Early (FIRE). What is the best way to accomplish this? Here are several simple steps that you can take to help get to that goal.
Start with a household budget - when budgeting your expenses, make sure to "pay yourself first" and set aside money for savings
Make sure you have a plan to pay off high interest credit cards, then car loans, then student loans
Ensure you have an emergency fund of 3 to 6 months of living expenses set aside
First focus on retirement planning and maximize your 401(k) contributions, then make sure you are fully funding a Roth IRA
Invest in residential real estate that generates a positive monthly cash flow (at least $100-$200 per month)
Put cash in high interest yielding savings accounts (at least 2%)
Invest in music royalties that yield at least 10%
Invest in consistent dividend paying stocks (target a 3% to 6% yield) - these also have great tax advantages since qualified dividends are taxed at a lower rate than ordinary income
Develop other passive income sources that require you to invest some personal time up front but then minimal time thereafter in areas where you have a passion and expertise, such as writing and self-publishing books and online courses, blogging, starting a YouTube channel, etc.
As the cash flow builds, continue to invest the extra cash in the same areas to compound growth
Remember the rule of 72 (if you divide 72 by the interest rate you receive, you'll know how much time it will take for your investment to double in value). I was just reminded of the power of compounding recently when I cashed in a EE US Savings bond that I received as a gift for my son when he was born (he's now 18 and ready for college); it was purchased for $500 and is now worth a little over $1,000! Best part is if I use the money for college I don't have to pay tax on the interest!
If you are interested in other investing ideas, please check out my books here.
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