According to Forbes, 30% of the 400 richest Americans inherited their wealth. Which means 70% climbed their way out of the middle class. Have you ever wondered how they got out? Here is a hint: Cash flow management.
Truth is, they’ve left behind principles and patterns for those wanting to change their circumstances. You can glean from them to improve your situation or you can ignore it and stay where you are.
If you ever wondered how the rich generate income and manage cash flow to maintain the financial state most people dream of, keep reading. Hopefully, you’ll be provoked to adopt these strategies and implement them to help usher in your own financial transformation.
So, are you ready for this? Let’s go!.
The One Thing That Sets Apart the Rich From The Wannabes
A great advantage the wealthy have is that they know how to utilize cash flow for maximum efficiency. They’ve learned what it takes to acquire wealth. The secret? Habits.
There are a few common habits among the wealthy that separates them from the wannabes. When it comes to financial management, practicing these rare habits (among middle class) gives them the ultimate advantage over the have-nots.
Let’s highlight just one of these habits and see how its impact alone can be the catalyst for increasing the gap between the poor and the rich. And if applied, this unpopular habit can make a great impact on the average person’s finances as well.
“Delayed gratification, or deferred gratification, is the ability to resist the temptation for an immediate reward and wait for a later reward.”
How to Utilize Your Cash Flow Like The Wealthy
Buying assets that have potential to increase in value instead of spending money on achieving immediate gratification is an ancient strategy employed by wealthy people. This ability to delay gratification and invest into things that can increase inflow and ultimately net worth might be the single most powerful mindset to have.
For instance, while most people would buy a brand new car or other depreciating assets — which restricts or even drains inflow — wealthy people might put that money toward stock, rental property, or another form of assets that appreciate.
To change your financial state, you need to think more like an investor and less like a consumer. Think appreciation!
Saying “no” to that boat now doesn’t mean “no” forever. It just means that you recognize now is not the best time to make that purchase. You can allow that money to grow and make that same purchase down the road without having to finance it.
Is the way you manage your finances now prolonging the “paycheck to paycheck” lifestyle, or is it getting you closer to financial independence?
Wait, there’s more.
How the Wealthy Generate Income
To achieve financial independence, you have to not only manage your personal cash flow like the rich, you need generate income like them.
“In my study of the daily habits of the rich and poor, I learned that most self-made millionaires generated their income from many baskets.”
-Tom Corley from RichHabits.com.
Having multiple streams of income:
- Acts as risk mitigation for your cash flow by alleviating loss to your income.
- Gives you leverage in negotiating for raises, if you’re ever in that situation.
- Provides you with options for other opportunities.
On top of these advantages, having multiple sources of income shields you from losing momentum. You don’t have to put your financial goals on hold because you have to scramble to replace the only income you had.
If one income struggles or even ceases completely, you’re not at a complete loss — you still have something coming in. This makes looking for a new opportunity less stressful, too, because it gives you time to find the right job, not just any job.
Putting all of your eggs in one basket is risky business, a recipe for a financial disaster and years of setbacks. Start thinking like the rich — diversify your income to keep momentum and reach your goal faster!
But there is catch…
Prerequisite to Diversifying Your Income
You can’t get there without healthy cash flow.
“Without healthy cash flow, it is difficult to acquire good assets, which can contribute to keeping the middle-class in their respective societal position for life.”
The journey to creating multiple streams of income begins with stewarding what you already have.
Is it important to pay your bills. Yes! By all means! But if you want to get there, you need to maximize your income beyond your expenses and immediate necessities. You need to pour into things that contribute to your ultimate financial goals.
Three effective way to achieve this is by:
- Paying off debt — Getting rid of debt increase available funds.
- Saving — Available savings will always help you reach your goals faster. It also provides you with cash on hand to put toward other income opportunities.
- Eliminating or minimizing depreciating assets
That’s easier said than done but getting rid of things that drain your income allows you to acquire assets that appreciate and increase net worth. In addition, it moves you further along toward your goals — financial freedom.
With healthy cash flow, you’re well positioned to invest into other sources of income.
How to Stream Your Inflow From Multiple Sources
There are to parts to creating wealth. Manage your assets well and generate strong inflow. Yes, being frugal is awesome and necessary (more on that in a bit), but there is a limit to how much you trim of your expenses.
That’s why creating more money is a superior strategy to creating wealth.
Did you know that you have more control over how much you earn than you can save on expanses? Some have gone as far as to say that “there is no limit to how much you can make.” Wrap your mind around that!
I doubt they’re referring to a single salary from your day job. This is why diversifying income is crucial to your financial state.
So, how does one do that?
- Save – don’t eat everything you make. Having cash in hand makes it easier to start anything (business, education, special training to develop your career and skills).
- Start a business (big or small) or a new career that will provide a greater income.
- Invest savings and/or additional inflow into assets that will generate more income.
- Take a risk and act. Without action, you can’t change your situation or reach your goals.
There are hundreds of ways to generate extra income. Some require little to no initial investment. So don’t wait for a substantial amount of cash to start investing into increasing and diversifying your income.
Check out 41 Ways to Make Extra Money to Change Your Situation Without Compromising Your Integrity to get your creative juice flowing. These are methods used by everyday people to enhance their cash flow.
The Joyful Humble Lifestyle That Sustains Wealth
Being frugal allows you to save more, invest more and keep more of what you earn. But its benefits go beyond finances. It’s superior in keeping priorities — the important things in life. To be frugal is to be purpose minded, not stuff minded. And it doesn’t mean you’re struggling.
Did you know that Warren Buffet has had the same wallet for twenty years and lives in the same house he bought for $31,500 in 1958?
Frugality is a response of a satisfied soul and a grateful heart.
Sarah Winfrey said it best:
“The best path to becoming frugal through and through is to realize and appreciate what you have. Only then will you be free from the desire for more, because you won’t be looking to the next thing, the next purchase, to make your life complete.”
Allow purpose to define your lifestyle. Your budget and spending will follow. Now that’s true wealth! Freedom from compromise, the next purchase, to answer your calling.
Let’s do this.