Asset-Based Living Versus Cash-Flow-Based Living
Wealth Can’t Wait, Chapter 8
Wealth comes in waves, and you can either ride the wave or get submerged by it. To build wealth in the simplest way, your expenses must be below your means and that you must invest your excess cash flow wisely. Investing in and building assets will certainly make you wealthy, especially with assets that survive most down markets with positive cash flow.
How do you move from a cash-flow-based life to an asset-based life without feeling too much of a financial pinch? The first step is to measure separately your income flow from work and your income flow from assets. The next step is to create a “Dream Budget.” Finally, match your income sources to your current budget and your Dream Budget. And, plan for a future where your income flow from your cash-flowing assets covers your budget. We suggest taking income and separating it into two types. The first is money in exchange for work, or regular income. The second is money that comes from assets or “passive income.” We always made sure that we earned a little bit more than we needed to live on, and we never outspent what we earned.
The concept of vertical income is something that’s taught in schools: Develop a skill or trade, take it to the marketplace, and earn income. Horizontal income, by contrast, is all of your income that comes from investment sources. Cultivating your horizontal income isn’t taught in schools unfortunately. It’s a skill that you must develop. It’s a key pillar of your financial freedom plan and a gauge of your progress in asset-based living. Don’t wait until retirement to think about your horizontal income and multiple passive-income streams. Start today by focusing on how you can build multiple streams of income that will serve you for a lifetime!