We are indoctrinated to set money aside and wait for decades before seeing direct benefit.
This is a game set up by institutions which operate by a completely different set of rules.
It doesn’t take money for them to make money—it takes your money.
They don’t take risks for return—they put the risk on you.
They aren’t waiting for the long haul—they create cash flow along the way.
Most of the middle class is stuck. They are playing a losing game. Maybe they have some home equity and some money in a retirement plan. Unfortunately, not a lot of money. Not close to enough to replace their income.
This one-dimensional process is about automation and contribution to a plan. In that plan they are:
- Locking away money.
- Reinvesting that money and interest right back into the plan.
- Deferring tax.
- Ignoring creation of cash flow.
- Getting reamed with fees.
- Being hampered by tons of restrictions.
- And staying over-reliant on volatile stock market investments to fuel the plan.
Doesn’t sound exciting.
And the worst part? Retirement plans are a partnership with the government and Wall Street. And are these partners you can trust?
The government can change the percentage of partnership anytime, by raising taxes. That means you could put money into a plan, defer the tax, and end up with a higher tax rate in the future. That is very likely considering the $34 trillion of debt the US government has created.
Wall Street.
Do I need to say anything here?
The cure?
One of my mantras is to automatically save and deliberately invest. In contrast, to automatically invest and call it savings is risky, problematic, and flat out inaccurate.
You don’t save money into a 401(k), you invest it. You lock it away. This is not savings—in fact, it is more speculation than savings for most.
Use the Cash Flow Index to Make Financial Decisions
Here is an equation to inform your actions: the Cash Flow Index (CFI). You can use it for both loans and investing.
The CFI will tell you if it is more effective for you to pay something off or to allocate more to investing. Or it can indicate it is time to become a better investor, adopt a new philosophy, and discover your Investor DNA.
CFI Calculation for Loans:
Take your balance and divide it by your payment. If your number is over 100, that is an efficient loan. If it is below 50, it is a cash hog.
The higher the number the better—think a basketball score.
CFI Calculation for Investing:
Take the amount you allocated and divide it by the monthly cash flow. For this score, think golf. A low score is best and means a good amount of cash flow with the money you have invested. Less than 50 is superb. Over 100 is somewhat dismal.
A high score means lower cash flow for the investment. A zero means…no cash flow. This is the savings mindset that is too reliant on compound interest at the expense of cash flow and economic independence.
If you have a low loan CFI and a high investment CFI, it is clear that paying off loans is your best path to saving interest and improving cash flow.
If the opposite is true, consider investing. I say consider because there are other factors to consider:
Time.
Risk.
Peace of mind.
Opportunity cost.
Spouse considerations (how they feel about having a loan or having a loan paid off).
So again: Are you an investor or a saver?
Most are savers. Savers who say, “I don’t have the time.” Or, “I don’t know where to invest.”
Invest in yourself.
Become a better investor or pay off your loans.
You choose.
Choose your words carefully. Are you inviting wealth or allowing scarcity to run the show? Are you regurgitating what Wall Street has indoctrinated in your mind?
What are you truly capable of?
What would it look life if you built your financial IQ and confidence?
How can you break free of the memes, cliches, and limitations promulgated by those who want your money?
This doesn’t take daily effort. It can happen in two hours each week.
Two hours.
If you go to the gym, you likely invest more time in the gym than two hours. How long do you dedicate to your favorite series that is streaming? How clear are you about your calendar? Are you good at allowing others to serve and support you?
What would it take to master your money? What would it take to change your story?
At a minimum, knowing your Cash Flow Index allows for more informed choices.
It is okay to be a saver—if you are saving interest, and improving cash flow…instead of taking risks and locking away your money.
But when do you finally learn to be an investor? Where do you invest? How do you invest? What investments make sense to you? What is your lane? Where do you want to focus and learn?
Change the story to the one where you are in the driver’s seat and the hero instead of at the whim of foolish stories marketed and fed to us by institutions.
Create your game. Create your plan. Create your life.
Retirement planning has nothing to do with cash flow today—it’s all about someday. I say, let’s go for economic independence. Where your assets create cash flow. Where your income comes from your assets instead of a job or salary or dividends from your business.
Here is your checklist:
- Cash flow focus first.
- Economic independence instead of retirement.
- More active upfront to find investments, and discover your Investor DNA, rather than passively putting money into plans locking your money away.
- Instead of accumulation (risky and slow), focus on acceleration by growing your income first, keeping more of what you make with efficiency, and then focus on growing your money once you have maximized income and efficiency.
Before allocating another dollar to your retirement, ask yourself: What do you consider a good rate of return? Is that what you are getting? Do you know?
When would you like to benefit from investing your money? Cash flow brings in benefits along the way. It lets you know if something isn’t working or needs to be adjusted. It removes the pressure of chasing money to pay bills when you have a more predictable cash flow.
Budgeting isn’t the answer and won’t save you. Setting money aside without knowledge, a plan, or knowing how it will benefit you is dangerous.
It’s time to choose.
How will you create your financial future and legacy?
