It is so true that cash flow is KING! But what really is “cash flow”? You can consider cash flow as the movement of money within your account. There are many things that constantly deplete funds out of your account many things that constantly replenish funds into your account. For example, negative factors and expenses like your rent or mortgage, bills, groceries, loans, entertainment, and incidentals, all take money out of your account. Positive factors put money back into your account. Things like your work income, rental income, dividends on stocks and bonds, sales of products and services, all put funds back into your account.
When you examine the amount of money leaving the account and the amount of money going into the account over a specific period of time, you can determine if you have a positive cash flow or a negative cash flow. In the simplest form, positive cash flow is when you have more money constantly going into your account than what is constantly coming out. So negative cash flow is when you have more money constantly coming out of your account than what is constantly going in.
So where does this positive cash flow come from? There is operational cash flow which results from the money you generate from normal types of business operations. So if you sell a product or service or do a job for someone and they pay you for it, then that is operational cash flow. But we are more concerned with investment cash flow, and that’s the money that comes in from your real estate deals.
Although investment cash flow can result from RRSP’s, stocks, bonds, dividends, and such, our cash flow comes from the income we make on our rentals. After all our expenses have been covered, what’s left over is our profit, and it is a consistent and passive positive cash flow. We’ve already done the work on the properties so unless there is an issue with one of the properties that needs to be addressed, and money spent as a result, we just sit back and let the rent payments come in. We don’t have to work to generate this income. It just comes to us
With a positive cash flow you will always have money to do what you need to do. Your account will never drain unless you overspend. As long as that cash flow is coming in, you are set. You are successful. You are financially free. So now you know why cash flow is KING!