If you could focus on growing your passive cash flow or your net worth, which would you choose? How you answer this question could greatly influence your future. We all know that wealth is usually defined by the amount of money you have, but what we sometimes fail to understand is that there are different kinds of wealth each creating completely different lifestyles.
You can certainly grow both your net worth and cash flow at the same time. For example, a person that focuses on growing their net worth will most likely receive some passive income/cash flow from their assets. Likewise, a person that is concentrated on growing their passive income/cash flow could certainly grow their net worth in the process. This question isn’t about choosing between having one or the other, but rather what your focus will be. So, let’s take a look at the two at little more closely:
You can grow your net worth by investing in assets that grow in value. In real estate a great example of this would be buying land. Land is not something that is being produced or manufactured, so it’s a great investment to increase your net worth overtime. Not only can it grow in value over time, you may find a piece of land in the path of progress that in 15-20 years you could rezone into a residential subdivision or commercial center. When this happens individuals can see massive returns on their investment and see their net worth sky rocket.
A person could decide to increase their cash flow by investing in assets that produce monthly income. In real estate a great example of this would be rental properties, commercial or residential. By investing in cash flow generating properties the investor can enjoy monthly cash payments that they can use immediately. Similar to the land example, the investment in cash flow producing properties could also increase in value over time and, if your properties are in the right location, they could be bought for redevelopment for massive future returns.
Clearly you can see that in both examples the individual’s wealth was increased and both scenarios have future upside potential.
However, the answer for where to focus my energy is quite simple! While my attention has been on both, my focus is and has been on monthly passive income. A person focused on net worth may have 50% more asset value at the age of 60 than the individual focused on passive cash flow, however I will take cash flow every time. There are many reasons for this but the greatest is that cash flow allows you to live life NOW! Monthly cash flow, especially passive income, allows you to live life with less stress and to do the things you want now, rather than forcing you to wait until your asset gets to a certain value.
I have found that when people primarily focus on growing their net worth, cash flow can often become a problem. These assets usually create very little cash flow and thus often require the owner to use their available income to support the asset. Examples of this are taxes, insurance, upkeep, and debt service (if financed).
While the future (which is uncertain and not guaranteed) gain of an investor focused on building net worth could exceed that of the cash flow investor, I prefer the freedom that passive income allows. Instead of working daily to create income to support your net worth investments, I would rather be living off the passive income from the cash flow investments.
It all boils down to the question we all should ask ourselves. Why are you creating the wealth? For me it’s for the freedom it allows me, the opportunity it provides to help those around me, and the margin it creates in my life to not always be focused on me. Passive cash flow gives me these things, and the dream for me isn’t millions in a bank account, it’s the life that millions in the bank allow me to live!
So, what would you do if money were not an issue? Build your wealth based on creating avenues to make these things possible! Click here to reply.