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Cash flow diagrams for the poor, the middle class, and the investor class

- - - - - cash flow investor savings

9 replies to this topic

#1
fasee

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    Being poor or unable to get credit 100% of the expenses must be covered with wage income. Schematically the cash flow looks like this
    Posted Image

    Thus you put your time into your work which gives you a wage income that is used to pay for stuff that goes back to you.People with a credit score can go into debt. Today almost anyone can do this. In this case debt can be use to pay for stuff and the wage can be used to pay for debt such as credit cards, car loans, mortgages, student loans, etc. This is the way most people handle their personal finance. Very few people pay cash anymore and financial success depends on being good at handling debt. Many websites will tell you how to do that.
    Posted Image
    You will notice that the debt box has a small leak of money that goes to other people. This is the price you pay for debt.

    Investors don’t pay other people to use money. They are the other people. If you want to be an investor, you need to build income generating assets. Investing is mainly about escaping the need for a wage income. Initially though other people will not be paying you enough money to cover all your stuff, so your cash flow will look something like this.

    Posted Image
    What can I say, I love making diagrams. Note that as soon as you have assets, you start getting an additional cash flow. If you want a larger cash flow, you need more assets. Personally I was so bent on accumulating assets that I reduced the amount of stuff I bought so I could save 75% of my wages.Once you have accumulated a sufficient amount of assets, the cash flow cycle will look like this.

    Posted Image
    At this point you will be financially independent. This is the stage I am in. My assets pay all my expenses in the form of dividends and interest. In other words, other people pay for my stuff. As I keep adding to my assets, my asset based income grows larger. Since this income is larger than what I spend, the assets can compound exponentially and aid in growing my income.Note that you are only financially independent if your assets can provide you with sufficient cash to cover your “stuff”. It does you no good, if your assets are your house or if they are sitting in a retirement account where they can’t provide income. Of course I could retire in which case my cash flow would look like this.

    Posted Image
    Notice the absence of a wage income. It is not needed because there will not be any creditors knocking at the door like a few steps above nor will there be any problem in putting food on the table.

    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.


    #2
    fasee

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    the main idea from above is from a book
    Rich Dad's Cashflow Quadrant: Guide to Financial Freedom

    do read it for understanding where we go wrong in adopting life styles whcih put us off balance in our financial life
    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

    #3
    fasee

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    a simple chart of how much shud be your savings rate and how much 1 year of sustainable saving rate can earn how much time of retired living based on your savings

    ( inlfation approx 12 % being netted off by 12 % retun on that savings portion for sake of easy understanding )

    Expenses....Savings........For every 1......You get saving
    Rate..............rate...........year of work........X years free
    90%...............10%................1....................0.11
    80%...............20%................1....................0.25
    70%...............30%................1....................0.43
    60%.............. 40%................1....................0.67
    50%...............50%................1....................1.00
    40%...............60%................1....................1.50
    30%...............70%................1....................2.33
    20%...............80%................1....................4.00
    10%...............90%................1....................9.00
    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

    #4
    Mansoor

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    View Postfasee, on 03 November 2014 - 05:57 PM, said:

    the main idea from above is from a book
    Rich Dad's Cashflow Quadrant: Guide to Financial Freedom

    do read it for understanding where we go wrong in adopting life styles whcih put us off balance in our financial life

    +1 fasee bhai, very helpful stuff and hope many will get benefit of these inputs.

    The prob which most of us face is that mostly our income is equal to expenses or at times expense are more then the income. So then the Saving becomes impossible thing.
    **********


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    #5
    fasee

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    View PostMansoor, on 03 November 2014 - 08:44 PM, said:

    +1 fasee bhai, very helpful stuff and hope many will get benefit of these inputs.

    The prob which most of us face is that mostly our income is equal to expenses or at times expense are more then the income. So then the Saving becomes impossible thing.

    sir jee am thinking of conducting a workshop for my people on these line sexactly..as i see alot of peopel jin ka yeh comon masla ahi ke savings zero hain..... sara kasoor inflation ka ya govt ka nahee hai... hamaay apnay contorl me kafi margin for improvement hota hai....

    i wud like to conduct a basic survey on these guidelines to see how i can help
    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

    #6
    ishaq333

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    View Postfasee, on 03 November 2014 - 06:21 PM, said:

    a simple chart of how much shud be your savings rate and how much 1 year of sustainable saving rate can earn how much time of retired living based on your savings

    ( inlfation approx 12 % being netted off by 12 % retun on that savings portion for sake of easy understanding )

    Expenses....Savings........For every 1......You get saving
    Rate..............rate...........year of work........X years free
    90%...............10%................1....................0.11
    80%...............20%................1....................0.25
    70%...............30%................1....................0.43
    60%.............. 40%................1....................0.67
    50%...............50%................1....................1.00
    40%...............60%................1....................1.50
    30%...............70%................1....................2.33
    20%...............80%................1....................4.00
    10%...............90%................1....................9.00

    Gud Work Fasee bhai.






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