Cash Flow Made Easy
In the simplest explanation, cash flow can be described as the flow of money in or out of your pocket.
When you go to work, and payday comes, you get your check and go to the bank and cash it. That cash has flowed into your pocket from another source.
Also, when your cell phone bill comes due, you mail in your payment or go to the store and drop it off. In this sense, cash is flowing out of your pocket. So cash flow is the flow of money in or out of your pocket.
It is the movement of money that makes your financial statement better.
An example of money that is not cash flow is when you get your retirement information for your 401K it shows an increase in the worth of the instrument.
Even though the money has increased, or decreased, it is not cash flow. The reason is the money is not really moving unless you were to cash it out and the money actually flows into your pocket at that instant. Same as the value of your home.
Let us say that you are trying to refinance your home at a lower rate and you need to get your house assessed for the value.
The house is inspected and it comes back that the house is worth $10,000 more than you thought is was worth. Your net worth has increased by $10,000 but you have not increased your flow of money.
That money is not flowing into your pocket. Even if your balance sheet shows an increase in net worth, you have not increased your cash flow.
In order to increase your cash flow, you must increase the amount of money that flows into your pocket every month.
Cash flow is the first part to understanding how to become rich. The simple and easiet way to get the money you want, is to increase your cash flow, not your assets.
Most people focus on their assets, not their cash flow.
Start focusing on cash flow instead. Making sure that a steady stream of income is coming in every month on a passive basis will get you their.