I work in Houston, which lives and dies by the price of oil and gas. When commodity prices are up, we’re a true boom town, but when they go bad, the whole city can go south quickly. Just in the past week, Schlumberger has announced at least 9,000 layoffs and dozens of other smaller companies are following similar exercises. The city has taken on a very nervous feeling. People are worried that they’re going to lose their jobs.
What does this have to do with cash flow? It matters because most people, even well paid professionals, are extremely reliant on a single source of income, typically a paycheck. Not only is a single source of income less than optimal, but one subject to the whims of one boss is the worst.
What’s the lesson? We should all be working to diversify our income bases so that the loss of any single income stream (or even multiple) it doesn’t cause us to loose any sleep at night, let alone become a detriment to my lifestyle.
Any family with a steady flow of rental income, dividends for our best blue chips, royalties from intellectual property, or income from a side business, there’s nothing to be feared if oil collapses, the economy has another 08′ or your company just decides to have layoffs.
As you continue to build your life and your business, always remember cash flow is king. If you build your life with that in focus you will build a financial life on a strong structural foundation that any single blow wont be able to affect.
How do you build a diversified mini empire like this?
Most people first begin by trading time for money, getting a job. Once you’ve established some basic cash flow from your career, you can begin to work toward building your assets. By keeping your expenses low and saving, you can throw that extra income in to your 401k, IRA, and other accounts and start buying your small pieces of Berkshire, Coca-Cola, Nestle and others.
Once you’ve saved up enough cash, you can purchase your first duplex, choosing to live in one half and rent the other. Hopefully doing this, allows you to live mortgage free and start saving for the next home.
While these are small victories, they add up over the long-term. In 10 years you can have a dozen rental homes, throwing off thousands of dollars per month to be invested elsewhere. As your salary increases, and your account balances increase, it will all continue to snowball.
If your particularly ambitious you’ll start working on side projects and businesses. Everything mentioned before this is the way to get rich for the slow and steady. Building a business is the only way to truly accelerate the process and reach the 0.01% of earners.
The quicker your able to diversify away from your paycheck and build up numerous, healthy cash flows, the more flexibility, security and peace of mind you’ll have.
Cash flow = freedom