Today’s video is all about how to make your money work for you, not the other way around! Learn the difference between assets and liabilities and what you can do NOW to grow your wealth with less work. Register for Building Your Financial Fortress Part 2: Cash Flow & Assets on for FREE today.
00:00 Introduction: Why Do You Need Cash Flow?
01:58 The Cash Flow Quadrant
04:24 Asset or Liability?
07:15 Good News and Bad News
07:57 How do you create cash flow?
08:37 Cash Flow Webinar: Register TODAY!
Introduction: Why Do You Need Cash Flow?
Hey everyone. Brandon Cunningham here from thecunninghamcollective.com where we try to help people win big in business and through financial education. So, why do you need cash flow? How do you figure out what your cash flow is? There’s a lot of misunderstanding around this topic and far too many people don’t take the time to figure it out or try to attain cash flow. And so one of the reasons why it’s important to have it is because if you’re too busy just working to pay the bills, you’re going to miss a lot of opportunities. I’ve called people before with opportunities and their number one reason for not doing it was they’re too busy. And my question is, too busy doing what? Working? Like are you going to want to work for the rest of your life?
I mean, that’s what this video is about. Do you want to do what you’re doing right now to earn money for the rest of your life? And the answer for almost everyone is no. At some point you want to do things that you would rather do, your hobbies, your interests, spending more time with loved ones, than just earning money. And in order to do that, you’re going to have to have money coming in without you going out to get it. So that’s the number one reason why this is important. How to calculate it is a little bit confusing at times because people put the wrong money or the wrong line item in the wrong column. And so let’s jump into this.
The CashFlow Quadrant
I touched on it already just a little bit, and that is what people do with most of their time is to earn money. There is something called the cashflow quadrant that famous author Robert Kiyosaki wrote in his book, well, Rich Dad, Poor Dad, and then his second book, The Cashflow Quadrant. But basically it’s this guys. 1% of the world’s population controls 99% of the wealth. Almost unfair, right? 99% of the world only has 1% of the wealth. And that number is getting worse by the day. And it’s because of this quadrant. So on one side, imagine a four section, just a line down, a line over. So you’ve got this quadrant with two boxes.
So the top box, which is where most people are, is “employee”. Most people are W-2 employees. The next box under it is self-employed or you own a job. So in this column, in this box, you have a job. In this box, you own a job. Like you’re the owner of the business, but if you don’t show up, no money comes in. I’m speaking from experience. Okay? Believe it or not, that side of the quadrant is where 99% of the world lives. But only 1% of the money’s there.
What’s on the other side, what’s over here? On this side of the quadrant is what’s considered big business or a system where there’s dozens upon dozens probably of employees, maybe thousands of employees, that are working within a system or a big business. I mean, you could think of a number of different scenarios where the owner really isn’t there anymore but the money’s coming in. And then the box underneath that one, the final box is the investor box where you’re not working, your money is working. All right. So understanding that you have to go from this side of the quadrant where you’re trading time for money to this side of the quadrant where your money is working for you is extremely important to your future.
Asset or Liability?
All you got to do is ask yourself this. If I stop working, does the money stop? And that will tell you if it is an asset or a liability. This is where people kind of get it twisted a little bit because we’re not talking about net worth anymore. You can list some things like a home. You can list your home as an asset when you’re calculating net worth. But when you’re calculating cash flow, you can’t do that. Does the home make you money?
Like the home that you live in, can you take that and go buy groceries? Well, if you sell it. But are you planning on selling it? If you’re not planning on selling it, how are you going to get the groceries? Go work. Wait a second, at some point you don’t want to work. That means, you guys getting the picture? There needs to be some money coming in. All right? So if you can’t leave, I’m talking to my self-employed people, if you can’t leave the business for a week or a month or more, six months, and your income’s not affected, then you really can’t count that as an asset.
All right. So let’s get into some specifics. We talked about the house a little bit. Let’s dive a little bit deeper. What about your car? Is that an asset? No, the car doesn’t make you money. Now, you need the car maybe to go make money, but the car itself doesn’t make you money. What about your retirement plan? No, because if you touch it, now that’s a taxable event and that money is no longer making you money. It’s building for a day where you can draw on it and live on it.
And then what about cash itself? If I put a million dollars out on a table in front of us right now, would you say that’s an asset or a liability? It’s most definitely a liability. Why? Because the million dollars sitting on the table is not going to make you another penny just sitting on the table. You have to do something with it. In fact, if there’s a million dollars on the table, are you leaving the room? Probably not because there’s a chance that someone may take some of that money. It is truly a liability. And another little piece of information. In the year 2021, inflation is for real and a million dollars today is not a million dollars tomorrow. It’s less. And so money, cash, currency is not an asset.
Good News and Bad News
Here’s a little good news, bad news. The bad news is you probably don’t have the cash flow that you want, meaning you don’t have to go to work anymore. That you’ve got enough coming in that you can do what you want, when you want, how you want. Kind of the good news is everybody else is pretty much in that same situation, meaning you’re not alone. You’re not alone in this and that’s one of the reasons why I have such a passion for this topic is helping people get to a point where they’ve got more money coming in without them going to work for it than they have going out.
How Do You Create Cash Flow?
So, how do you create cash flow? Well, you create or buy assets. What’s that? An asset, like I said, is something that makes you money. So what can make you money? Real estate can make you money. You can do it a number of different ways where people are… You own a home. Someone’s in the home, a renter. They go to work to pay your mortgage. You don’t go to work to pay that mortgage. They go to work to pay that mortgage. And between what you’re charging for rent and your expenses, there’s a spread called cash flow. So you can do it with real estate.
You can do it with business. You can create a business where you’ve got a full system in place where the business, big business, we’re talking dozens upon dozens of employees, are producing you cash flow. Or there could be paper investments. There’s a lot of different things we can do there with paper. For instance, you could loan someone some money and earn interest on that money. There is investments. And finally there’s royalties. That’s the one that I truly love where you build something or do something once and you get paid over and over and over again. I actually like all of those. In fact, anything that is producing cash flow for me, I’m interested in. So buying assets. Most people buy toys. They buy expensive houses and boats and toys. And what you should be doing is buying assets and letting the assets pay for those toys. So that’s a little tip.
Cash Flow Webinar: Register TODAY!
If you like this information, we are going to take a deep dive into cashflow, why it’s important, how to create it on June 12th, a webinar. Go to thecunninghamcollective.com, register for the webinar on June 12th. I can’t wait to be able to dive deep into this with you. And on top of that webinar, if you really want to see what’s going on behind the scenes, we have a private Facebook group called The Collective. Send us a message or go search us out on Facebook, “The Collective”. We’ll get you in there. It is full of people that are smarter than me that are willing to help you.
I hope this information finds you well. I hope you love these type of topics. If you do, let us know in the comments. Subscribe to this channel and tell your friends about this because we’re on a mission to help people win big with business and financial education. My name is Brandon. Thank you guys for being here.