passive cash flow

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

Real 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.