Cash flow literally means ‘the flow of cash’. Behind this barbaric term lurks an extremely simple principle: it is simply a sum of money that will return to your pocket at regular intervals. For example if you buy a stock that costs $100 and pays $5 of dividends, your cash flow is $5. If you buy 100 shares, this gives you a cash flow of $500, which return to your pocket without touching your initial capital, and this at regular intervals.
It’s a way to increase your revenue from day 1 of your investment, and it doesn’t matter what kind of investment vehicles used as long as it pays you regularly (shares via dividends, bonds via coupons, real estate via rents). The higher the payment frequency is, the better.
Why do we need to focus on this way of investing?
Because the Cash Flow that goes right back into your pocket can be reused immediately to create a snowball effect.
For example: You buy a property that gives you a positive cash flow of $200 per month. You can use $200 to buy 2 shares at $100 each month which will bring you $5 each. In one year you buy 24 shares, a portfolio of $2400 will pay you itself 24 x 5 = $120 in the first year, that can be used to buy new shares and will bring you interest again. You will understand it allows you to reach interest on interests, which greatly accelerates your enrichment speed. ...CONTINUE READING