Cash Flow

convert ideas to money

How to Convert Ideas to Money?

, , 0

We are fortunate to live in a knowledge-driven era where ideas can be converted into money and money can buy great ideas at a fraction of their potential value. There are all kinds of talented people in this world. There are visionaries with great ideas but lack the skills to convert ideas to money by building a profitable business around it.

convert ideas to money

Then there are business builders whose time is absorbed in solving practical problems that they have no time to be creative. They are willing to pay good money to buy ideas that can be converted into money.

Bill Gates did not create any of the software that he sold. He built his Microsoft business around products and ideas that he bought from others. The genius of Steve Jobs lay in visualizing potential of product created by others and using them to build Apple the most valuable company of our times. For example ‘mouse’ was never built for use with computers. He cross-pollinated the idea and rest is history.

Story Of a Great Idea Gone Waste

This is the story of a great idea gone to waste. Russian economy was in a turmoil because of the Soviet Union break-up in the early nineties. The Government was trying hard to get the economy going again and they were suspicious of the USA and the West.

A dear friend of mine who had recently retired from the Navy had a brilliant idea: he decided to take a bold trip and explore business opportunities in Russia. His advantage was that he spoke excellent Russian and was married to a beautiful Ukrainian lady with political connections. It was a masterstroke because he came back to India with a rich haul of Government contracts for supply of food, clothing, and shoes etc. that were worth millions of dollars.

Rich businessmen got whiff of the contracts and their potential. My friend was wined and dined. Businessmen were ready to offer excellent money to buy out the contracts but my friend insisted on becoming 50% partner in the deal even though he had no money. The conditions he set forth were unacceptable to the businessmen.

My friend was in no position to execute the contracts as no one would give credit to him without financial guarantees. To cut the long story short, all the contracts expired without a single one being executed successfully. It would have been wiser for my friend to sell the contract to businessmen who had the right experience. This would have given him the finances to build the Russian business and improve his credibility with the Russian Government – a brilliant idea gone waste.

Even Small Ideas can make you Rich

Everyone does not have to be Bill Gates, Steve Jobs or Eon Musk to become rich. Even small ideas have the potential of making decent money; each one of us has great ideas! We face problems in life that need a solution: we are angry with the government and local bodies not doing things that have common sense solutions.

Sometimes, we get inspired by a new thought or idea but let it pass. We put it off for another day or think that someone else may have thought of it … The idea dies a natural death. If we tap into even a few of those ideas, nurture them and find practical solutions we can become rich.

At times, an idea may be too big for you to execute. You have to then sell your idea to others. But before you start selling your idea or product, you must protect it by filing intellectual property rights. You have to show some intent, only then will venture capitalists fund your idea. You can also license your intellectual property to create passive income.

Final Thoughts

There are thousands of creative ideas that can help you generate cash flow required for investing. The internet offers great opportunity to those with bright ideas and little start-up – the world is flushed with money! Investors are looking to invest in the next new idea. Can you focus your energy and concertize your great idea into practical existence? I assure you, if you can, money will never be an issue ever again.

Investing is the second leg of your financial stability, whether you are an employee, self-employed or in business. Investment for passive cash flow brings solidity to your financial well-being.

stock market

How to Beat the Stock Market?

, , , , 0

Fundamental & Technical Investing in the Stock Market

With the advent of online trading many investors have become ‘day traders’ operating from the comfort of their home office. They buy and sell shares by using various types of software available in the market. Most of these people are engaged in technical investing. Though ‘day trading’ strictly cannot be termed as investing, if the aim is to create passive income. It is good for generating cash flow if done properly.

A truly knowledgeable and sophisticated investor takes investment decisions after doing both fundamental and technical analysis of an asset.

Fundamental Analysis

This involves careful analysis of the following:

  • Financials and future earning potential of a company
  • Economic outlook with especial focus on country and state where the company is located
  • Economic outlook of the specific industry in which the company is involved
  • Direction of interest rate movement

Technical Analysis

These days, markets fluctuate wildly because news travels at lightning speed and gets amplified through multitude of news outlets. This affects the market sentiments of both buyers and sellers. It is because of this more people are turning towards technical analysis. They prefer short-term trades as against investing for long-term. Technical analysis involves the following:

  • Analysis of emotions of the market
  • Supply and demand of company stock
  • Look for discounted prices of a stock based on sentiment
  • Study of pattern of share price movement
  • Study volume trends of sales and purchases of a stock

Fundamental analysis is a must if you wish to invest for long-term. This is what Warren Buffet does best to create long-term wealth. Technical analysis, on the other hand, is more suited for short-term trading. Whether you are long-term investor or a short-term trader it is advisable to use both the analysis methods. This will not only maximize investment returns but also reduce risk.

Outside and Inside Investors

Most people are outside investors. They make their investment decisions based on financial reports released to the public as a part fiduciary responsibility of a corporation.

stock market

An inside investor is the one who has some degree of management control of a company. He has greater knowledge regarding the future plans and problems within a company. This knowledge is extremely important to reduce risks and increase returns.

You can become an insider either by building your own company or buying controlling interest in a company.

Being an inside investor should not be confused with SEC definition of an “insider”. According the law “insider trading” is illegal if one profits from company information that is not public.

The difference is that an inside investor has control over direction and operations of a company. An outside investor does not and is therefore limited in his capacity to change things.

Concentration Vs Diversification

Study the two statements below carefully:

“Do not put all your eggs in one basket.” -Proverb

“Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.” Warren Buffet

This is why investing can be so confusing for many investors. Your fund manager will advise you to diversify by investing into mutual funds and Warren Buffet will give exactly the opposite council to focus only on few investments. Both advices are true depending on your circumstance.

“Wide diversification is only required when investors do not understand what they are doing.” Warren Buffet

If you lack the knowledge of investing or do not have the time, then it is best to diversify by buying into mutual funds. It is best to seek advice from competent fund managers or better still invest on a monthly plan into an index fund.

“By periodically investing in an index fund, the know-nothing investors can actually outperform most investment professionals.” –Warren Buffet

Index funds are those that track share prices and are better because they have no loading costs. It has also been found that they perform better than most fund managers.

On the other hand, if you are a knowledgeable investor with limited funds at your disposal and wish to embark on path of accelerated wealth creation then it is best for you to focus on one or maximum two wealth creation strategies at a time. You can truly master only one of the two things at a time. You also greatly reduce risk by concentrating on few holdings.

Once you have mastered an investment technique, it takes very little of your time to repeat the process to maximize your profit. Building wealth can be a boring repetitive process once you have mastered a technique. Unfortunately, the human mind needs excitement and most people tend to lose focus as they want to try out new things. There is nothing wrong in exploring new ideas but one should not lose focus on things that are getting results.

Once your wealth grows, it is important to diversify to preserve your wealth. Concentration builds your wealth whereas diversification preserves your wealth.

We do a full circle from diversification in the initial stages when we lack knowledge, to concentration for accelerated wealth creation as we become more knowledgeable and finally go back to diversification to preserve wealth.

Analyzing Investments

If you wish to become a knowledgeable investor whether it is real estate, stocks or businesses you have master the following:

  • Financial Statements -Become an expert in reading and understanding Financial Statements such as balance sheets, profit and loss statements. These are important to understand financial health of a company and risks involved in investing in a company.
  • Investment formulas – These help in calculating profitability and risks involved in an investment. There are software programs and calculators that help you with the calculations but you still need to understand what they mean in relation to an investment you are analyzing.
  • Investment Vocabulary – Mastering investment vocabulary will help you in discussions with experts when analyzing an investment.

 

 

cash flow positive assets

How to Buy Cash Flow Positive Assets in Today’s Market?

, , , , , , , 0

The two most important words in financial vocabulary are Cash Flow. Cash flow pays our bills, supports our lifestyle and helps us buy more income producing assets. Banks love cash flow. They will loan us money to grow rich if we have cash flow. The most difficult times in our lives are when we do not have adequate cash flow and are unable to meet our financial commitments. In the worst case scenario if we lose sight of our cash flow we can go bankrupt.

No one can rely on cash flow from jobs in this fast changing world where companies are downsizing and artificial intelligence/ robots will soon be replacing human beings. For example driverless cars will replace humans which are one of the biggest sources of employment.

Accumulating high return cash flow assets that give passive income is the stepping stone to becoming rich and freeing ourselves from financial tensions of our daily life.

The problem in today’s world is that all assets seem to be overvalued. There is a fear that too much money has been printed by the governments in order to recover from the 2008 financial collapse that can trigger even a bigger economic crisis in the near future.

According to Warren Buffet buying cash flow positive assets for capital appreciation is pure speculation. The value of your stock may collapse tomorrow. You have better control of your investment if you buy for cash flow based on return on investment. Even if the price of stock goes down you will not get into trouble because of the cash flow from your investment. He advises against buying gold or art works that give no cash flow and are only speculative in nature.

How do we invest in stocks when PE (price earning) ratio is extremely low because stock prices are over inflated beyond rational limit? There is virtually little or no cash flow from dividends. Same is the story from properties where inflated prices of homes have reduced net returns into negative territories. What happens to these investments when inflation rears its ugly head and interest rates rise?

One option is to ride out the current storm by investing in debt funds and remaining cashed up for the economic crash when great wealth shift will take place as being advised by financial gurus including Robert Kiyosaki. What happens if the great crash does not happen and the world settles down to the low growth rate like Japan with zero to minus interest rates? Should we stop accumulating assets due to fear of the future crash that may or may not happen?

A prudent move will be to lower financial leverage and investment cautiously by not lowering the criteria for cash flow. To buy cash flow positive assets in this highly inflated market needs knowledge and patience. To grow financially one has to continuously buy assets. But don’t get pressurised into buying assets for the sake of investing if it does not meet your buying criteria.

The trick is to buy assets that are below value so that they have adequate cash flow and then add value to those assets to increase cash flow. Avoid over exposure to financial leverage in current market conditions but use other forms of leverage to build value such as technology. Sensible leverage is needed for accelerated growth and increasing cash flow from your assets.

You must also take a serious look at your current assets and check how they are performing. They may have risen in value over period of time and returning low cash in form of dividends and rents. Compare the current value to the return they are generating. You must sell assets that are generating low returns on current value and buy assets that will generate you higher cash flow. In this way you will not only increase your current cash flow but also position yourself to invest in opportunities when markets go down from their current levels.

Another important aspect is having control over your asset so that you are master of your own destiny. Warren Buffet invests in companies wherein he has adequate shares to get a seat on the board of directors. If you are on the outside you have little knowledge and no control of the company. You have to either have controlling shares or at least become an insider to know how the company is functioning to protect your investment.

When starting out you may not have enough money to become an insider in large corporations. Invest in small and medium sized companies. Better still start your own company and be in command of your expenses and income. It does not take big investment like the good old days to start a company. Internet has leveled the playing field. The only thing you need to do is invest in your knowledge.

cash flow positive assets

how to create passive income

How to Create Passive Income Investing Either Time or Money?

, , , , , , , 0

A lot of people are asking how to create passive income investing either time or money? You will need to make a significant initial investment to create a passive income, which can be in terms of money or investment in time.

Investing Time

how to create passive incomeMost time investing, passive incomes comprise of ideas that will need energy inputs as well. Generally, you will be turning your spare time into some sort of product that will provide a steady stream of income over time.

Everyone has some unique knowledge or skill that can be converted into electronic books and sold on the internet to create passive income. The beauty of life is that each one of us has a unique experience that can be shared with others in form of blogs and books. I have written a few books. These books are working for me as passive income generators. I am simply sharing my experience with others and creating value in their lives. Each book that I write is a new source of passive income for me.

Publishing books was a problem earlier on as only few big authors were accepted by publishing houses, which is no longer the case. You can now self-publish a book with Kindle, Barnes and Noble, Nook etc. The options for self-publishing are getting better and better with each passing day.

You can also create blogs with the information you wish to share with others and monetize them. Once the blog is in place you will be required to spend some time developing links to it so that Google can find it. After that, your blog or website will keep generating a steady trickle of advertisement and referral revenue.

Investing Money

If you have money to invest then you can simply invest that money into generating passive income for you. You can consider some of the following paper assets to generate passive income:

Dividend-bearing stocks 

If you buy, let us say, $20,000 worth of Coca-Cola shares then you will be entitled to receive regular dividend payments that will give you passive income. Over a period, your stock will multiply and gain in value increasing your dividend payments. You should choose a very stable company that pays out a very steady dividend, this type of approach can earn a very reliable income for you. You might also want to invest in mutual funds that are indexed to spread out your investments over a large number of stocks (less risk.) I will cover more of this strategy later in the book.

Treasury inflation-protected securities (TIPS)

Tips are bonds that you can purchase from the government whose face value adjusts according to the rate of interest, so that when the TIPS matures, you will be able to sell it for more than the initial purchase price. TIPS return is at a very low rate but they have the advantage of being rock-solid investments that will match inflation growth when you sell them.

Savings accounts and CDs

CDs are similar rock-solid investments. They are also very liquid (meaning you can cash out your money whenever you need it). The interest rates are generally on the lower side. There are, however, times when a savings account or CD is very solid.

Annuities 

Annuities are investments you can purchase from an insurance company that will pay you a certain amount of residual income every year for the rest of your life. The younger you are, the smaller will be your contribution. Let’s say, for example, that you purchase a $30,000 annuity, one that the insurance house quotes at 4%. It would mean that you would receive $1200 each year for the rest of your life from that company. The risk you have here is that the insurance company may eventually become insolvent, leaving you with nothing at all. You must therefore seek out an insurance company with a long history of stability and good bond rating. You must also diversify across multiple insurance houses.

cash flow

How to Generate Cash Flow to Fund Investments

, , , , 0

To fund investments and generate passive income you need cash-flow. Most investors when starting out do not understand how to generate cash-flow.

Cash Flow Problems 

As an employee, there is very little money you can spare for investing after meeting your basic needs. There is a limit to how much belt tightening you can do fund your investments. After all, there is a need to live in the present. You can start a part-time business that will help generate not only extra cash flow, but will also save you tax dollars that can be used for investing.

Becoming self-employed improves cash flow but is still not the ideal situation. Things start to change once you become a business owner. The problem  is that a growing business has huge cash needs to grow. Most business owners have a tendency to redeploy their capital in growing their business rather than investing. This is not a very healthy financial situation because if something goes wrong with the business they will lose everything. The only stable situation is when you stand on two strong financial legs.

How to Generate Cash Flow?

To grow rich fast, you have to sell. This is the fundamental principle. You have to buy whole sale and sell retail. You have to master selling and marketing skill. Most people hate selling but without a sale there is no money. Faster you overcome hesitation regarding selling, the sooner you will embark on journey to riches.

We examine few other creative ways to generate cash. These methods will vary depending whether you are an employee, self-employed or in business. These methods of cash generation should not be confused with investing which is creating long-term assets that provide passive income.

Flipping Real Estate

flipping real estate

This involves buying a property below value. Making renovations or adding value by sub-division, unit titling, adding additional space etc. The last step is to sell the property for a profit. It best works with delayed settlements and early excess to the property before settling. Your cash flow will increase on how fast you can renovate and sell the property.

Flipping real estate can be risky when the property market is in a downward spiral with prices going down with few takers in the market for your end product.

Buy Build and Sell Businesses 

This generates far higher profits than flipping real estate but requires a higher level of skill and experience. The trick is to buy under-valued businesses at rock bottom price. Increase revenue and profitability of the company. There will be a considerable capital gain if you sell a business with a healthy profit.

Buying and selling businesses require much lesser capital outlay than flipping real estate. There are loss-making businesses you can buy with no money down. The owners of such companies are at times stuck with long-term leases and just want themselves out. It takes much lesser effort and time to turn around a loss-making business caused due to poor management.

All you need is an excellent jockey to run your business, change in personnel and sales/ marketing effort. Quick sale of activity can be made by providing vendor finance, finding an employee with a payout, management buyouts or selling the business one part at a time.

Franchising a Business 

Once you have a successful business with systems in place, it may be possible to franchise the company for additional cash flow with little or no risk. Initially, you may have to spend some money and time to set up franchise system for your business. Once this is done successfully, it costs virtually nothing to add new franchises.  Your cash flow and profits increase with every addition of a new franchise.

Take Company Public

This is the secret to real wealth and riches.  This is what experienced entrepreneurs do: they take their company public. Bill Gates would not have been the wealthiest man in the world had he not  taken his company public. Rich sell paper assets to become more affluent.

This is trading at the ultimate level. It is like creating wealth out of nothing. Now you have other people’s money to grow and buy businesses and assets. You have to sell a dream to go public and once you have the money you have to make that idea become a reality. To succeed you will need excellent trust in yourself and your team.

Converting Expenses into Cash Flow

Most people buy stuff like TVs, cars, expensive clothes, holiday homes, and boats etc. from income after tax. This keeps them poor all their lives. Rich people, on the other hand, buy assets that give them passive cash flow and at the same time reduce their taxes. They get extra cash flow from a refund of tax dollars and also income from the asset. They keep repeating this process every year and growing more affluent, which is an upward spiral to riches.

The poor people on the other hand keep buying stuff that not only costs them money but also regular maintenance cost that keeps mounting every year.  They keep sliding down the wealth ladder with negative cash flow.

Information Technology the Next Big Frontier

Today a common man has more computing power in the palm of his hand (in the form of mobile devices) than a supercomputer a few decades back. He also has access to world marketplace to sell goods, information and services through the internet.

Most people waste their time playing online games, visiting social platform, forwarding useless jokes or watching movies/ TV shows. There is nothing wrong with these if done in right proportion. Unfortunately, this becomes an all time-consuming activity with zero productive output.

information technology

The internet provides a huge opportunity to change your financial outcome at minimum start-up cost. It is a source of huge cash flow. Yes, there are internet scams and Ponzi schemes but with little knowledge, you can keep clear of them—you must take a look at the opportunities it has to offer.

Some of the biggest companies in the world like Amazon, Apple and Microsoft, Alibaba were launched by young people from their garages with shoestring budgets.  Some of them were school dropouts. These are big stories that inspire us but also intimidate us. Fortunately, there are thousands of small new start-ups and success stories every year in virtually every part of the globe. It is over a trillion dollar pie getting bigger each day. It depends on you how much of the pie you want to grab.

Solve a Problem

You get paid for problems that you solve. Bigger the problem that you solve, more money you will get paid. This is true irrespective of whether you are working as an employee, are self-employed or running a business. Technology helps solve problems at a much faster and cheaper rate than anything. It can be applied to solve any daily problem that you encounter.

While starting out, do not try and solve a big problem or you will get disappointed. Facebook started as a social website for college students. It gradually got scaled up. Look at a niche problem in your locality and try and solve it with the help of technology.

You don’t have to be a computer expert to do this. You don’t even have to employ anyone. On the internet, there are hundreds of websites like elance.com, fiverr.com where experts provide technical support for any work that you may have for fraction of cost of hiring someone part or full time. You have to think like a business man and solve people’s problems.

Affiliate Marketing

Another great thing about the internet is that you don’t even need to have your own product to sell. Virtually every company in the world is paying affiliates online to sell their products. If you have used a product and are passionate about it then sign up as an affiliate for the product and start marketing it on the internet.

Drop Shipping

Have you heard of drop shipping? You can tie up with a physical product manufacturer for marketing their product. Most manufactures don’t have the time for marketing their product and will be most happy to pay you if you sell their product. You can make sales on the internet through Facebook advertising or Google AdWords. Once an order is received, you can collect the money and ask the manufacturer to ship it directly to the buyer.

You don’t need to invest in the product, own a warehouse to store them or provide after sales service.  The only thing you need to learn is how to market on the internet. It costs very little but some effort is required to acquire the marketing knowledge. Anyone can do this without any expensive start-up costs.

Start Internet Business Part-time

how to generate cash flow

You can start an internet business part-time even if you are an employee. Over 60% of businesses worldwide do not have a website. Large numbers of those who have websites are not mobile compatible. The majority in business does not even understand how an application can help and grow their business.

Tony, a friend of mine, understood this problem and started his own business even though he was not an expert in building either websites or applications. His target was small businesses. After taking orders, he would get the websites and applications built by various experts on the internet. He would then take up annual maintenance, website hosting, social media and promotion contracts. This gave him passive income. His business grew and soon he was hiring full time virtual assistants and technical support staff from Philippines. This was at fraction of cost of labor in his country.

Endless Possibilities

The internet has endless possibilities. You can build websites for handyman services, plumbers, electricians, childcare services, real estate renting/buying and selling for homeowners who wish to save on commissions, selling books, old clothes, cars … the list is endless and limited only by your imagination.

Remember, you have to start with tackling a small problem in narrow niche and stay focused until you start making money. The problem with the human mind is that it always wants to start big from the beginning. There is nothing wrong in thinking big but always start small. Take a few small steps to success. This is the only and sure route to success. As you gain experience and start making money, slowly but surely expand your business.

Once you learn the skill of marketing through the internet, your cash flow problems will be over.

 

passive cash flow

How to Generate Passive Cash Flow?

, , , , , 4

Active and Passive Cash Flow

‘The most important word in the world of money is cash flow’ –Robert Kiyosaki

Cash flow is not only important for buying assets that create passive income but also to pay your bills and fund your lifestyle. If you dispassionately look at the most stressed period in your life, more often than not, it will be a time when you did not have enough money to meet your financial commitments.

Managing cash flow is important to the happiness of your family and loved ones; most individual and business bankruptcies occur when people lose sight of cash flow. Perhaps, the three most dreaded words in English language are ‘negative cash flow.’

Active cash flow is from sources where you have to physically be present and work for money. Passive cash flow is when funds flow into your pocket without any physical effort on your part. Passive cash flow is far superior to active cash flow.

When money works for you day and night without you having to lift a finger … that is a state you should aspire to be in. I am not saying that you should stop working or being creative—it is important to lead a productive and fulfilling life.

Passive cash flow from diverse sources will give you financial stability that you and your loved ones so richly deserve. It will put an end to your financial worries so that you can lead life of your dreams.

Let us examine some passive wealth generators.

What are Passive Cash Flow Generators

For most people, passive income is generated from investment in real estate, stocks or bonds that pay rent, dividends or interest.

Commodities and Art Work

Investment in commodities like gold, silver, antiques, art work or oil do not qualify as income generators as they do not provide any cash flow. If an asset value is based on what a future buyer may pay then it is pure speculation and not an investment. If your aim is to create passive income then stay away from such types of investments.

Real Estate

how to generate passive cash flowReal Estate is, without doubt, one of the best passive income generators for reasons explained in the last commandment. However, only few properties fit the criteria of cash flow investments. You have to be conscious of this fact before buying an investment property.

Properties also require substantial amount of deposit to buy. Till that time, you have enough money to deposit and buy a property – you should invest in stocks, mutual funds and bonds under a Systematic Payment Plan (SIP).

 

Businesses

The other source of passive income generation is big businesses that operate without day-to-day monitoring or interference from the owner of the business. Small businesses do not qualify as passive income sources as they require considerable time and effort involvement of the business owner.

Royalties

You can also generate passive income from royalties if you are a talented writer or musician. Only very few people can earn this kind of passive income as it needs special talent. If you possess talent then by all means, use it to generate wealth but make sure that you don’t sell rights of your books or music to other entity as the Beatles did when they were young.