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Three Cashflow Ideas for Thriving During Rapid Change
By David Campbell On 01/19/2012 · 2 Comments · In Cashflow Investing, Inflation, Investment Training, Training Video
Learn professional investor David Campbell‘s predictions for the US economy, and cashflow strategies to profit from an elongated recession and impending inflation.
IDEA #1: Learn and grow. Don’t cling to your parent’s or mutual fund sales person’s antiquated ideas about cashflow and money.
Imagine you’re applying for a job in computers. You’re confident. So what if the last computer skill you learned was in 1989? How much do things really change? Floppy discs, dial-up modems; you know your stuff! But then your potential employer wants to know about your proficiency with cloud technology, CRM databases, SEO optimization, and social media. Uh-oh…
Now apply this analogy to the world of personal finance.
The financial ideas that worked yesterday, last year, last decade, are completely ineffective in today’s economy. In today’s financial world, change is the only thing you can be certain of. You need to keep your financial knowledge current or the consequences to your cashflow can be unpleasant at best or devastating at worst.
IDEA #2: Savings are more important, but hording cash will bankrupt you.
Think of cash as milk. You always need some in the fridge, but it has a relatively short expiration date. The US government is doing everything it can to slowly and steadily erode the value of the dollar. Why slowly and steadily? If the value of the dollar is eroded too fast, there will be social unrest. If the value is eroded too slowly, US exports are too expensive in the global market and the cost of the US debt becomes unmanageable. The US can only afford to pay its debts if we pay them with devalued (inflated) dollars.
What does this means to you? While cash gives you a cushion against an uncertain job market, cash is steadily losing value. Make sure you’ve saved enough cash to shield you from an interruption in your income stream. However, once you have your cash security blanket in place, excess cash and non-inflation adjusted cashflow could be considered a LIABILITY because it is continually going down in value.
While the government is “targeting” a long term inflation rate around 2-3% per year, as consumers and businesses hoard cash during uncertain times velocity slows and monetary policy makers are “forced” to speed up the printing presses to compensate. The next round of TARP funds is already on the way to shore up real estate values and quadruple the cost of your groceries.
If you don’t have enough cash to grease the wheels of life you will certainly have a difficult time surviving. However, if your primary investment focus is accumulating cash reserves in savings accounts and CDs, you will get wiped out by the coming inflation.
IDEA #3 Create multiple streams of inflation adjusted cashflow.
Creating an inflation-adjusted cashflow stream gives you freedom, simplicity, and control over your finances. Investments that generate inflation-adjusted cashflow can avoid the ups and downs that give heartburn to investors focused on building a high net worth. If you own a valuable widget making machine but it isn’t turned on, you may as well not even own it. Focus on turning idle equity into cash flow. Turn pools of cash into streams of cash. There are a lot of “wealthy” people going bankrupt because they planned on selling assets with equity to cover their cash flow needs. But your grocer won’t accept an equity interest in your assets as payment; your grocer only takes cash. You never want to liquidate an asset because your grocery bill is due. You want to liquidate an asset when the marketplace tells you the time is right.
I meet people all the time who are struggling with cashflow and yet they rush to pay down their mortgage. When you pay down your mortgage, does your monthly cashflow improve? Absolutely NOT!!! Your loan will get smaller and you will save on interest costs, but that savings is not realized for decades (unless you refinance and amortize your debt over a longer period of time). Don’t try to solve a cashflow problem by turning useful cash into idle equity.
A client of mine once had a house worth $600,000 with a $480,000 mortgage. He made extra mortgage payments to get his loan down to $400,000, but then a funny thing happened. The house dropped in value to $400,000. Where did his equity go? Where did his cash go? BOTH GONE!!! Even though his mortgage balance was smaller his payments were the same. A much better solution would have been for him to leave his mortgage alone and take the cash intended for amortization and invest it into a cashflow investment vehicle. If my client had done this, he would have a $400,000 house with $480,000 of debt and an $80,000 investment generating cashflow. In both situations my client’s net worth would be the same, but in the latter solution my client’s cashflow would be radically better.
In the following free investor training video which is part one of a three part webinar series you will learn:
1) about currency devaluation, why it’s happening to you, and what to do about it.
2) why the global recession will get worse and which investments you absolutely want to avoid!
3) how to leverage these “interesting times” to your profitable advantage
I hope you are able to use these cashflow ideas to thrive during these times of rapid change.
Great information! I’m going to have to try out one of these ideas of yours.
Great content, really like the bartering idea. God Bless