Generating Cashflow is Now More Important Than Ever
Generating cash flow is now more important than ever!
Why? Here are a few headlines that highlight headwinds that every family is experiencing:
This is one year after the Federal Reserve shifted its approach to inflation:
We see inflation in the news every day. The only ways I know to fight inflation is to increase cash flow and decrease consumption. With interest rates near 0%, the federal reserve is doing everything it can to keep our economy moving despite a decreasing amount of goods and services in the economy since COVID-19. The Fed is printing $120 billion dollars a month driving both inflation and decreasing the purchasing power of your hard-earned dollars. A simple way to measure is to compare the number of dollars to purchase an ounce of gold in 1920 vs 2021. Additionally, in 1965 the cost of silver exceeded the value of the quarters the government was minting. So they had to use a cheaper metal. This is the challenge with inflation. The value of your currency goes down. If your dollar still purchases the same amount of gas, lumber, or food then consumers are no better or worse. However, the real problem is that your dollar is purchasing less fuel, less lumber, less food because there are more dollars chasing fewer goods and services. The chart below highlights how aggressive the Federal Reserve has gotten trying to stimulate the economy by printing money.
Chart taken from Richard Duncan’s Macro Watch newsletter: Debt Credit and Wealth April 6th, 2021
These trends highlight why it’s more important than ever to generate cash flow. The balance sheet is the tool that can unlock your cash flow statement. First, let’s define what a balance sheet is: a ledger of assets and liabilities. An asset generates cash flow or holds its value. A liability is something that reduces cash flow.
The balance sheet is simply a record of these items. Robert Kiyosaki is a master explaining how this works. I think this picture from his most recent pre-release book Capitalist Manifesto explains it best:
As you can see above you must first have a record of your assets and liabilities before you can generate income from those assets.
The first step to growing and protecting your wealth is to keep a running balance sheet. I have created one you can fill out today by answering a few simple questions at https://www.bmdinvest.com/tools.
The tool will guide you through documenting assets that hold their value like Real Estate, Savings accounts (may not hold their value as much as many people think), Gold, Patents, Businesses. It will also help you inventory liabilities that remove value like credit card debt, car loans, school loans, mortgages, personal loans.
Once you have a baseline of your assets then you can strategically pick assets that generate cash flow. This is why the balance sheet is so important and the key that can unlock your cash flow statement. When working with the right professionals investors will develop strategies to responsibly use debt, protect their assets, and apply the appropriate tax incentives. It's a team sport!
One of the most popular strategies is to invest in real estate. The advantage is that banks will loan money against real estate, which helps investors increase their assets while tenants pay the loan. If you contrast this to purchasing stocks you need $1,000,000 to purchase $1,000,000 of stocks (there are exceptions), however, if you want to buy $1,000,000 of real estate you need $200,000. There are almost unlimited options to generate cash flow and diversify risk. Last, this highlights why private placements or syndication's are so popular. Investors can achieve the benefits of real estate investing passively so they don't have to manage the debt, the property, and financial records.
None of this is possible without a balance sheet. This one small step can transform your monthly cash flow when paired with the right professionals.
If you have questions or would like to discuss don’t hesitate to book a call. Or, if you would prefer speaking with an independent professional who specializes in helping people turn their assets into cash flow send an email to info@BMDInvestmentgroup.com. We will send you a link to an independent 3rd party who receives no compensation from BMD Investment Group.
Until next time share the wealth by forwarding this message, sharing on social media, or discussing with family or friends.