Which is better – High Net Worth or High Cash Flow?
We hear a lot about the net worth in the media and whether someone has achieved a ‘millionaire’ status. But what does that really mean?
Net Worth Explained
Net worth is just the total amount of a person’s assets if they liquidated everything minus any debt the person has. Let’s look at an example of net worth. Jen owns a home, has a retirement account, and has a savings account. Combined, those 3 assets have 1M in value. Jen also has a mortgage with 600k of outstanding debt and a credit card with 100k of debt. Jen has 1M in assets & 700k of debt, so she has a net worth of 300k.
Cash Flow Explained
Cash flow is the difference between a person’s money coming in and money going out. For example, Jen has a job making 5k per month and she spends 4k per month. Jen’s monthly cash flow is 5k – 4k, or 1k.
Which is more important? Let’s think through an example
Casey owns a huge house inherited from her parents with no debt. She lives in this huge house and it’s worth 1M dollars. Sarah owns a successful nail salon. Which scenario would you rather find yourself in? I’d choose Sarah’s situation because Sarah has a business that is worth money (she would get paid a chunk of money if she sold it) and she also has monthly income coming in from her business. Casey would have to sell her house to see any money from the home she lives in. Her house doesn’t pay her money on a monthly basis like Sarah’s nail salon.
So how do we increase cash flow?
There’s really only one way to reduce expenses, which is to make choices to spend less money! Here are a few ways to increase money coming in:
- Work more
- Start a business
- Buy a rental property
- Passively invest money to increase cash flow without taking time
Want to learn more about passively investing?
Passive investing is perfect for a person who has some assets such as a savings account, and who values their time and wants to spend the least amount of time possible to increase their cash flow. By investing passively in real estate syndications, an investor can increase their cash flow without increasing the time spent making money. If you’ve tried the hard way to increase cash flow through more work or buying a rental property, then you know that is not an easy path. Late-night phone calls and water leaks ringing a bell? Join our investor circle to learn more about investing passively with us and to be able to see the investment opportunities we have!