How to Increase Your Cash Flow (Part 2)
Money Girl helps you turbo-charge your finances by multiplying your positive cash flow.
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This is the second episode in a 2-part series about how to increase your cash flow. In part one, we discussed the importance of eliminating or reducing negative cash flow. I gave you 5 tips for cutting one of the biggest expenses that typically drains cash flow: housing.
In this episode we’ll look at the other side of the coin. I’ll give you ideas about how to increase your positive cash flow by owning assets and investments that actually create income..
How to Increase Your Cash Flow
To achieve financial success, you need regular monthly income, or cash flow. But most people don’t understand all the ways you can get more of it. For instance, the average person is stuck in a linear view of money that goes something like this: get up, go to work, earn a wage, deposit paycheck in the bank, and spend paycheck on bills.
Don’t get me wrong. It’s wonderful to have a secure 9 to 5 job, especially if you love the work. But it’s also important to remember that you don’t have to depend on an employer for 100% of your cash flow. It can also come from owning different kinds of assets.
Problem is, if you spend your entire paycheck on bills and never have any left over to invest in assets that create additional income, you’re missing a huge financial opportunity. This is why you should always invest at least 15% of your income.
See also: How Much Money Do You Need to Retire?
Which Assets Create Cash Flow?
But what should you invest in to get the most cash flow? I strongly recommend buying assets inside tax-advantaged retirement accounts. You might qualify for one at work, like a 401(k) or 403(b). If not, just about everyone is eligible to contribute to an Individual Retirement Arrangement (IRA). There are even more types of retirement accounts designed just for business owners or those who are self-employed.
Retirement accounts are great because they reduce your taxes and give you an easy way to invest small amounts of money. For instance, you might invest $100 from every paycheck in a mix of stocks, bonds, mutual funds, exchange-traded funds, or real estate investment trusts (REITs).
However, don’t contribute money to a retirement account that you might need to spend before retirement. You generally aren’t allowed to make any withdrawals from a workplace plan, unless you have a documented financial hardship. You have more flexibility for taking withdrawals from an IRA.