Make no mistake, I am not a millionaire nor the smarted man on this planet, but alas the propagation of mankind has been accelerated by folks who theorize and remain curious. This post will be about finances, in particular, how to create cash flow.

Finances is just another thing every adult has to manage. Although finances aren't directly related to sexual strategy, they can help build a well rounded character. Being sad and stable is better than being sad and broke. I'm well aware that there are business owners in this community, but as the title states, this is a premise, or an assumption that I think is true and I am open to criticism. Onward to the main body.

1.) Vocabulary

Income - Money Coming in Your Pocket (I.E. Salary)
Expenses - Money that leaves Your Pocket (I.E. Car Payment)

This refers to the way cash flows.

Asset - Something that Generates Money (I.E. Businesses)
Liability - Something that Takes Money (I.E. Wives)

These are objects or entities that direct cash flow.

2.) Theory

In order to form a coherent theory, I will establish and end goal and a situation.

Goal: Have $5000 cash coming in at the end of the month after all expenses are paid.

Situation: 20 Years old, works a 9-5 pulling in $1500 a month, has a rent payment of $750 and a living cost of $250 ($1000 Per Month)

There are several ways to approach this situation. The most common way I see people approach this is to use more of your most valuable asset, your time. Example, work overtime, work harder to achieve a raise, or find a better job. This method of increasing cash flow is by far the easiest method (sometimes) yet it is the hardest way when it comes to living a truly financial free life. There is no possible way to get ahead by working for money. You will always need to work more. Don't even think about saving, while saving money is good, investing is better, which is an entirely different topic.

The other method that I would use to approach this situation is to buy or create an asset instead of put more stress on just one (my time). For those who aren't savvy on what generates money, there are two things on planet Earth that will put more currency in your pocket:

One is a business, and the other is property. Property is whatever you own, not just land or houses. This also includes intellectual property.

So after we get home from our 9-5 and realize that we don't want to live in an apartment anymore and have dreams and ambitions like every other human-being, its time to start looking for our first asset, and the asset that most people have success with is real-estate. Anyone can get into real-estate and just about anyone with basic math skills can compute basic numbers to calculate expenses. Besides, everyone needs a place to live.

So we've got in our head we want to buy real-estate, as it is far easier to do this than start a business. (Most self employed people pay %60 taxes!). Lets assume we are smart enough to realize that multi-family housing units and apartments are easier to buy and manage than a single family home. We can cut our living expense from $250 to $100 to save up for a down payment while doing side gigs to earn more cash. We can also work on our credit by getting a credit card and USING IT PROPERLY to build a credit score above 700 (Which can be done in 3 years folks).

In three years time, we have built our credit and managed to get a sizable lump of cash around $20,000. We find a duplex in a developing part of the city for $125,000 that needs some new paint and yard work, which is all stuff we can do for under $500. We talk to the realtor to find out the expenses of living there and also talk to a bank to find a loan and a mortgage payment estimate. Altogether, if this house is reasonable, it will cost $800 to cover water, heat, electricity, and the loan payment for 20 years. Whether or not this is a good deal or not is up to you, but lets assume finding a tenant is easy and it is a fairly new house. We pull the trigger, we buy it.

But wait now, didn't we just do the opposite of building cash flow? We just added an expense of $850, we can't even afford that with no living expenses. Fear not, this is where other people come to help us. Rent out the other side for $850 and live in the other side for free. So now our financial statement goes from this:

Income: $1500 (Work), $50 (Occasional Side Gig) [$1550]
*Expenses:* -$750 (Rent), -$250 (Living Expenses) [-$1000] Total Cash Flow: $550/Month

Assets: ----	Liabilities: Rent, Yourself

To this:

Income: $1500 (Work), $50 (Occasional Side Gig), $850 (Rentals) [$2100]
*Expenses:* -$250 (Living Expenses) , -$800 (Rental Expenses) [-$1050] Total Cash Flow: $1050/Month Total Passive Cash Flow: $50

Assets: 1 Duplex	Liabilities: Yourself

Congratulations, you have a passive cash flow of $50 a month! You can quit your job and live off of it for the rest of your li---

Wait, it isn't that simple, and we haven't even reached our goal of $5000 a month! You are the property manager, you have to fix the place if the tenant breaks it and make sure to keep them in check, or possible kick them out, and all other sorts of nonsense required to maintain the place. While property managers do exist, you need at least a certain amount of properties and etc... You get the idea.

In essence, this is all easier said than done and most of it is rinse and repeat. Achieving any substantial cash flow takes 6-12 years and you have to know how to spot a deal. Some great deals come your way and some deals never come your way. This is just one scenario, but if there is something I want to make a main emphasis on in this post is:

Minimize Liabilities, Maximize Assets

And since we aren't millionaires, just use someone else's money (The Bank) and have someone else pay it off.

In the scenario above, you are practically living for free. The money you have invested is the $20,000, and if you play your cards right, can make twice that every year in passive cash flow with more experience. You most likely won't make millions doing this, hell, most people don't, but having $20,000 a year without working sure is nice. Some people make careers out of this and some just use it to bolster their already nice income.

I hope this post makes some sense. This is all theory and requires extensive homework to properly execute, but it is doable and isn't a far-fetched dream.

For a forum dedicated to rental property investing, I suggest biggerpockets.com. They have online calculators and all sorts of helpful people to meet in the rental world.

One last tip for the day: The average millionaire has 3 streams of income.

Also please look at this provided picture for an accurate income statement, [From Robert Kiyosaki]

Income Statement Comparison between a person who works for money and a person where money works for them. From Robert Kiyosaki.

Thanks for reading! - Mette

Edit: Added Picture

Permalink

bsutansalt 6y ago

I see you reference Kiyosaki, but never mentioned his book where most of this comes from....

Rich Dad, Poor Dad

It's legit starting advice for those just cutting their teeth in personal finance and a quick read. He really does have some valuable information. Kioysaki may have made his fortune primarily in real-estate, but his lessons can apply to any other asset building strategy whether it be sockets, annuities, etc. The main takeaways for me were:

Don't buy liabilities
Buy assets... and have those buy your liabilities
Learn to use incorporation and tax laws like the rich

hmsthinkingmeat 6y ago

Kioysaki may have made his fortune primarily in real-estate

I think he made his fortune primarily in telling people how to make a fortune.

People promoting get rich quick schemes and courses usually made their money by selling get rich quick schemes and courses.

bsutansalt 6y ago

I can't speak or his courses, but the book has zero "get rich quick" elements to it. It's life lessons you can leverage for improving what he calls your "financial IQ".

askmrcia 6y ago

I read that book once and everyone involved with Amway tries to get me to read that book everytime I bump into them at a grocery store or at my gym.

Plus he got in some legal trouble and a lot of the stuff in the book wasn't true, made up completely or debunked several times.

He does have SOME good material in it, but the guy you replied to is right. He made money selling the books and basically being a scam artist with Amway

memphisjohn 6y ago

Friendly correction: this post is not a "premise" -

: a proposition antecedently supposed or proved as a basis of argument or inference

specifically : either of the first two propositions of a syllogism from which the conclusion is drawn

b : something assumed or taken for granted : PRESUPPOSITION

... But it may be a "primer" (pronounced /primmer/ in British English.

1 : a small book for teaching children to read

2 : a small introductory book on a subject

3 : a short informative piece of writing

brasilgringo 6y ago

The reddit "personalfinance" and "financialindependence" forums aren't horrible.

Nicolas0631 6y ago

Your explainations are interresting but to me you are under evaluating the way you have to make more money from your job.

Remember that all come first from a stable income source that cover your basic needs AND to save some money that can then be invested.

Also remember that typically you don't make more money while you invest. It is uncommon for a flat to provide for more than it's cost (credit + keep it in shape). And even with great interrests rate, stocks and finance isn't producing much once you factor the inflation. You'd need likely at least 1 million in the bank for that.

So to be truely effective, it is best to first invest in a good job. I means 6 figures. Your best investment for that is 5 years of your live 18-23 to get a master degree that has some value.

At 23 you'll get more income that 99% that would have started with base salary at 18 and mastered their investment. And working well in your field, at least in US shall get you at 100K at least in your 30s and the double before you retire.

Even your first years working, you'll be able to save thousands of dollars a month and so be able to actually loose a bit of money on your real estate investments.

This way you'll afford to buy lot of real estate with the leverage of the bank. Each one will bring a bit less than his cost in practice, but once it is paid for, after 15-20 years, this is full cash in.

Typically there no reliable way to get 5K of income with no credit on it at 20 with no initial capital. A business likely need you to be extremely smart and work for it, so this doesn't cut it, stocks you need something like 1 million $ invested and real estate will not make more money that what it cost before you finished to pay for it at the bank.

So there basically no way to get out of this before being 50-55 years old at least reliably. And then having a good salary as base income is still very dependable.

If you make 1500$ from your main job all your life, it will be very hard to pull 5000$ a month of additional income, most will fail devoting their life to that. But if you make 10K$ a month, you can likely save about 6-7K$ a month (including your home) and buy a shitload of real estate enough to get 10K+ of income in 25 years.

brasilgringo 6y ago

The cited chart doesn't seem quite in sync with how at least i look at middle class. My middle class life has Assets like Stocks, Bonds, Notes spead across mid and large cap total market funds including REITs to cover the real estate piece. Those provide dividend and interest income directly . Many of those firms held by the funds have IP, and I'm sure I could start to create my own IP blog content if I gave a shit. Also I'm confused by the Rich not havng car loans or school loans? Is it beign suggested they either dont need schools or cars, or that they pay all-cash upfront? that woudl be silly if the cost of the loan is lower than their expected return keepting all but the down payment in investments that generate a higher return than the loan rate. Rich people use credit cards and deal with payments, they just don't generally leave unpaid balances between statement periods. Overall the graphic I think confuses the issue and tries to start class anger more than be a useful tool.

shadowq8 6y ago

Asset is not something that generates money. A car is an asset, however it is a depreciating asset.

bsutansalt 6y ago

Cars are not assets unless paid off in full, and either way they depreciate like you said. Similarly, real-estate isn't always an asset as many in 2008 found out the hard way.

jackandjill22 6y ago

Correct. But if you know how to play the insurance game among many other things even though it depreciates the moment you drive it off the lot with good management you should be able to continuously trade upward if you aren't stupid.

Filofa 6y ago

In accounting terms, it is.

mette13 6y ago

You are right, it is an asset, just not a financial asset.

AladdinHussein 6y ago

A car costs you money, thus is a liability

-3

zyzzbrah21 6y ago

I would rephrase it as this way: an asset is a positive cash flow producing an entity. A liability as anything that costs you money or burdens you with debt. Therefore a car is not an asset unless you rent it out or it appreciates in value (think classics and rare special editions) Same goes for a home.

Too many people nowadays think their house is an asset, it is not. This is the exact reason why accredited investor status is equal your total net worth minus your primary residence must be greater than 1 million.

brasilgringo 6y ago

It's a good way to think about it, but all the accountants are shaking their heads ;). For example, every time I see Deferred Revenue as a Liability my brain explodes a little... (Yeh, it's bc you still have to provide the service to "earn" it, but dammit most of the customers paid up front and I already got the cash!)

teabagabeartrap 6y ago

The post proves the point very good and is a nice example to make clear what should be teached.

But as I tried this and own a completely paid 3 flat house now, where I rent out 2 and live in one, I must say... didn't work out as calculated. As every 10 years something like the root, the tubes, the bathrooms, the outside walls, the electric, the pavement or the heating needs to be redone. It comes down to be zero rent. I'm basically living for free in a 80m² flat. But everything else only covers it's own cost.

Roof = 30.000 Euros every 50 years, 3 Bathrooms with all the tubes done =50.000 Euros every 50 years, fresh pavement every 30 years for 5.000, etc. If you calculate this all inside and be no prick to not do it and have your rent people live in a 60s bathroom, then you this needs to be considered as well and no-one does.

I truly believe that student flats are the shit. Because they are in big citties (easy to rent) and they don't care if the bathroom is 60s plating... so maybe there the numbers work out. On all other calculations all over the internet, these costs are forgotten or are way too low at least for europe. maybe US houses are really just made of cartboard and therefore I don't know... this does apply?

sniper1905 6y ago

I truly believe that student flats are the shit.

Here's a video of a man named Matt McKeever and he owns houses which are relatively cheap and collects rental income from students. He has 102 tenants if you haven't watched the video.

redxiann 6y ago

Yeah but you still have net worth that will appreciate with the market considerably, especially because you’re taking care of your property/ies

You also have a tax write off with the expenses incurred for maintaining the property.

Plus you’re living for free and your (typically) most expensive expense is covered.

daymi 6y ago

No, you are right. That's why you have to spot the deal and only buy those - best after an house inspector took a look at them (inspection costs EUR 1000; architects do them).

I had a house that you describe and it was burning a hole in my pocket. I sold. Everyone told me I was crazy selling it. But people only saw the "finished" house. Of course the house looked good, but at what cost (both in my money and my time - I learned a lot of maintenance skills I really didn't want to learn)? Three years later now, it was the right decision to sell in that case.

zyzzbrah21 6y ago

I currently have 3 streams of income and let me tell you, it is glorious. (Income from salary + bonus, an actively managed portfolio, and 3 fourplexes that make me 11k a month)

To make it in this game its all about leverage. No money in excess of what you need for the cost of living should sit in a savings account to rot. I even advise some people to opt out of retirement plans as they are traps to take away investing power from the middle class, but i digress.

Take your work income, find a strategy, and buy stocks, when the right real estate deal comes along, liquidate and buy that house/apartment/stripclub - immediately. See an opportunity, take action -simple.

The next step is how you grow this into something big. I'm only 24 and i've come a long way in the last 3 years since starting. I want 100 units in the next 5 years. The way i have been doing this is by what's known as the BRRR method. Buy, Rehab, Refinance, Repeat.

For anyone looking to build real wealth, create an empire, and fuck the girlfriend/wives/mom of the average 9-5er, you need to expand and pour all the income you can back into real estate.

10 years in, you'll look down at your 200 unit empire like the slumlord you are, making 200k a month while your dick scrapes the pavement and not give two fucks about a boss or worrying about pleasing someone else to make money. You will have finally built a reality for yourself.

Ps - Don't spend money on dumb shit. Cut your subscriptions, cut your addictions, buy cheap chicken breast and brown rice and meal prep. Skip the coffee, and stop spending so much at bars to impress people who don't give two fucks about you.

Edit: I use property managers on all my properties. I don't even want to meet my tenants, let alone manage the property. You can usually get one from 6%-12% of rent income a month, that number goes down to the lower end if you own multiple properties with said management company.

PeterPansSyndrome 6y ago

This is awesome. Did you research how to differ taxes till later so you can continually reinvest your gains? Any books or recommendations on this topic?

Nicolas0631 6y ago

This is maybe possible for 0.01% of people. Doesn't look feasible.

DigitalDragonSlayer 6y ago

Can you elaborate on the third sentence of paragraph 3?

Nice username. Get lifting or die mirin.

sebastianconcept 6y ago

Couple of questions:

how much percentage of your income comes from dividends?
the refinance part, how do you get leverage for improving the original?

miserablesisyphus 6y ago

What stocks are you buying that allowed you to cash out in what i'm assuming is 2-3 years (since you're only 24 years old) that actually made money (minus fees and brokerage fees, etc) . Also, how much money did you invest? I'm finding it hard to believe you were able to use your income from a brand new job (you're only 24) and invest it in such a short amount of time and make money, unless you already had some kind of inheritance, etc. and you just cashed it out. Assuming you someone invested it successfully this would be a very rare situation.

Also, how much debt do you have? Do you rent or have a mortgage? How much is owed on the rental property? Do you have credit card debt, car debt, etc?

throwawayflatwhite 6y ago

Thanks for catching this. Another good reminder to always filter out the information you get from Reddit.

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SeasonedRP 2 6y ago

Tip: anyone who uses terms like "income streams" or "passive income streams" is just spouting the lingo of get rich quick gurus and isn't actually successful. People who actually are successful don't use those terms. Your questions are valid and illustrate why his post is BS.

zyzzbrah21 6y ago

read my response below. Should add some color - thanks.

[deleted]

zyzzbrah21 6y ago

I should have prefaced this with the fact that I'm an anomaly. I came out of college with 80k from day trading/investing and working, then immediately got a job on wall street in BB Sales&Trading. I make around 100+ 30-60K bonus right now so money is not tight.

The stocks I buy are small caps that display good financial growth quarter over quarter. (income statement/balance sheet) it is about reading the shit people never do. Typically I buy stocks under 5-10 a share and rebalance after 20-30% growth. I would read up on it more, it came naturally to me since it was tied to my profession in Sales&Trading.

Also, parents paid for college, so 0 debt. I rent in NYC. Put down 20% on each investment property originally. no car either.

All of the money I have earned over the last 3 years in excess of what I have in my brokerage account has gone into real estate. Most people cannot fathom this bc they need 10k in a savings or need a 401k plan. I opted out of all of this to have full access to my cash so that I could create some passive income. All of my rental income goes back into buying new real estate as I don't need it. It's doable... it's just that most have other obligations so they cannot achieve such things. (debt, loans, taking your gf out to dinners, you name it)

All of my properties were around the 190-250k range in southern Massachusetts, downpayments+closing costs ran about 50-60k each.

Happy to share my email with any that have questions.

jackandjill22 6y ago

What are you doing with these low-priced property's you're buying up? Are you renting them? Flipping them? or holding onto them waiting for the equity to build as the property market goes up & if that doesn't happen what're you going to do with them? I'm not a wallstreet trader so the first part doesn't mean anything to me. But the second leaves me abit confused.

Ironically I know alot of people that do both Daytrading & Real-estate.

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ReasonXLogic 6y ago

Do you have a property manager? Surely you dont have enough time with your job to maintain those property's.

AloofusMaximus 6y ago

My company (me) only owns a duplex, and I use a PM as well. The way I see it is if my cash flow is that damn tight I can't afford the 8%, it's a shit deal in the first place.

That being said there's several reasons I went with a PM for only 1 property.... 1- it's a business expense I get to write off. 2- I don't know shit about being a PM not do I want to be one, so I'll pay someone that's an expert. I also don't want to deal with any tenants (I have 0 contact with them) 3-its an extra layer of protection. PM-LLC-me

Although you don't have to manage the property, you DO have to manage your PM.

zyzzbrah21 6y ago

yes, of course, i bought all the properties in range of my friend who runs a management comp. Does them for 6.5% of revenues. Hands off real estate is the best form of real estate,

throwawayflatwhite 6y ago

How much help did you get from your friend who runs a management comp?

mette13 6y ago

One thing I could never grasp is how to properly invest in stocks and get a portfolio rolling. Where should a man with no experience start?

brasilgringo 6y ago

You know, the roboadvisors may not be a bad place to start... Betterment, Wealthfront and the like. There are all kinds of discussions about picking individual stocks yourself VS investing in (basically) index funds, and the roboadvisors are the latter on rails to make it easy for the average person.

AloofusMaximus 6y ago

Investopedia, YouTube. There's a lot of good info out there. It's probably a bit harder to start now. When I started my portfolio in my 20s I was able to use sharebuilder. They recently got bought by E-Trade which I think has a minimum amount (it used to be a bit out of reach for small amount investors like me, I think it was a 10k minimum). There's various strategies as well, I've always been all about DRIP.

[deleted]

zyzzbrah21 6y ago

For the beginner, I would start with a learning period of 6 months. Get as much info in your head about the financial markets as possible. It doesn't have to be in depth. (Stocks, Interest Rates and the FED, Economic Outlook) Download a platform like thinkorswim and make lists of companies you like (Finviz works well) Understand how these stocks trade and make small investments across a range of financially sounds comapnies. Over time you should adjust as necccessary. The main thing is to learn how to read a financial statement so you can make a wise investment decsision.

https://www.sec.gov/reportspubs/investor-publications/investorpubsbegfinstmtguidehtm.html

the two most important things to read and understand when making an investment are the income statement and balance sheet. Learn how to read those and spot the good ones before anyone else does and you're on your way to some extra fuck-you-money.

dan-1 6y ago

Where do you learn about scouting out housing information / market and knowing what to do? This is probably a layered question but I just wanted to know how I can start out. I'll be graduating college with 0 debt and $100k+ job so I want to set myself up for success

azitah 6y ago

How did you initially get your momentum going? How did you accumulate initial capital? Just working a regular job or were you an engineer or something?

zyzzbrah21 6y ago

i had 80k coming out of college. To make that i worked 4 internships over the course of 4 summers, lifeguarding prior to college had netted me 10-15k, and portfolio growth. I had actively managed a portfolio that i grew from 10k in 2013 to 80k in 2017. i work in sales and trading now at a bank on WS

jackandjill22 6y ago

Most internshisps aside from very good ones don't pay well. & the latter are hightly competitive. You're in a fortunate position in more than one. What were your degree's? How did you land a position making $100k strait from university?