Cash Is King: Part 3 - Increase Your Net Investible Income BOOST RETURNS on liquid capital without giving up access to cash: https://themoneyadvantage.com/privatized-banking/
It may seem unnecessarily complex to parse out a healthy philosophy of savings, but I promise, it’s this little distinction that will mean a world of difference for you.
It’s this definition that will determine whether you exercise your full capacity to create wealth and purpose and meaning in the world, or whether you fall off the road into the steep ditches on either side: on one hand medicating your lack of true fulfillment by spending it all today to make sure you at least got to enjoy life, or on the other become the miser that’s hoarding money for fear of not having enough and missing out on life’s beauty altogether.
Probably one of the most important things you could ever clarify for yourself is your motives about money.
So take a moment to understand. Hang in there until you do. I promise it will serve you for a very long time.
The point of paying yourself first is to increase your net investible income.
So, what is net investible income, and how do you increase it?
Let’s break this down.
Income is the easiest place to start. It’s the money coming in each month. To increase it, the solutions that come quickest seem to be asking for a raise, working more hours, getting a higher paid job, getting a second job, or sending our spouse back to work.
Each of these solutions rely on a core concept that income is related to a paycheck from hours we’ve spent working.
But there’s another, more efficient thing we can send to work for us than our time.
It’s our money.
When you put your money to work for you in assets that produce cash flow, the assets increase your income.
Now that we’ve explored the options to increase income, let’s talk about the net investible portion.
Imagine you have a rule that you always save 30% of your income. If your monthly income is $100, you’re saving thirty bucks. If you increase your income to $150, your rule now has you saving forty-five.
So, before you work on increasing your income, the rule to pay yourself first has to be in place first.
But, let’s face it, a savings account is NOT a cash-flowing investment. Paying yourself first into a savings account won’t give you income, unless you want to count a couple pennies each month in interest.
This is where we have to connect the ideas of saving and investing together.
If you think of them separately, like hey, do I save this money OR invest it, you’ve already taken two steps down the wrong path.
Investing has two main goals: growth or income.
You’re either looking for your money to increase in value (growth), or you’re looking for it to give you cash flow (income).
For example, investing in a stock you plan to hold your whole life is a growth strategy. You’re expecting the stock to increase in value, increasing your net worth.
Buy and hold real estate investing is a cash flow strategy. You’re planning for a paycheck each month from your renters that’s greater than the monthly costs like the mortgage payment, insurance, property management fee, repairs, etc.
This distinction is key, because while increases in your net worth may look good on paper, assets that cash flow add extra income to your paycheck each month, giving you the security of tangible money that you can use.
Let’s go back to where we left off with connecting our investing to our saving.
Paying yourself first is putting a percentage of your take-home pay into cash savings that won’t decrease in value, and that you can touch, access and use.
Next, HOW you use your savings to invest in cash-flowing assets is CRITICAL.
You have 2 options:
1. You move the money from savings to your investment. This is a redistribution of where you’re holding your money. Essentially, you’re draining out the savings tank, and using that money to fill up the investing tank.
2. You borrow AGAINST your savings, using a loan to make the investment, and allowing your cash to continue earning uninterrupted compound interest for you.
The most advantageous position you can be in is one where you have access to a gigantic pool of capital that’s growing like a war chest that you can use, AND you have assets that you know and control, that are producing net cash flow.
This is the fundamental cycle that sets you up for financial freedom. Robert Kiyosaki, founder of the Rich Dad company, defines financial freedom by the point in time where income from your assets is greater than your expenses.
When money is used to produce true freedom, we are liberated from the bondage of our fears and set free to live our highest purpose.