I've often used my cashflow diagram to explain money concepts to my children and friends. This diagram originated from many simplified sketches and drawings I've made trying to explain the somehow difficult cashflow concepts.
Cashflow Diagram
Imagine a long, cylindrical pipe. Now imagine that our pipe moves money to and from your account.
By the way, what's great about this sketch is it can be used for your personal account or that of a business. Now let's look at the essential parts of our diagram and how it applies to your personal account.
Money inflow
Money can only flow to your account on two ways. There's no other option to legally get money into your account. You either Work for it, or you earn it by NOT working for it... thus Passive income.
Working...
The most common inflow... is when you WORK for it. For most people that means earning a salary. Click here to learn more about earned income.
Of course it's also possible that you're self employed and still earning an income by "working" for it. But the bottom line is, you're still working for your money.
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What's the easiest way to know whether you're "working" for you money?
Ask yourself this... if I stop doing what I'm doing, does my income stop. If the answer is "yes", well then you're definitely "working" for your money. Click here to learn about the common cashflow pipe for "working" people.
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Passive income...
In it's simplest form passive income means getting money while you sleep or do nothing. The most common methods are from...
* interest on savings
* rent from properties
* dividends on shares
* royalties and patents, and...
* various business incomes
Click here to learn more about passive income and residual income.
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"You" distributor
The next step in our cashflow diagram is where passive and work incomes both flow into the "You" distributor (Y).
The "you" distributor is your account. But I've termed it the "You" distributor since you completely control how money in your account is distributed. Click here to learn how the "You" distributor can increase Free money.
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Money outflow
Expenses...
Every single penny you spend to pay bills, make loan and mortgage payments, for day-to-day necessities or even personal luxuries are Expenses... or E for short.
The important thing to realize with money flowing out of our cashflow diagram through E is... this money is lost forever. It's wasted and cannot be used to increase your current money inflow. Click here to discover how much you can really win by limiting E money wastage.
Free...
In our cashflow diagram Free (F) is money available to you for reuse. You can use it to increase cashflow into your account. Click here to learn what's needed to increase money flow to your account.
Remember...
Y(ou) control the amount of F(ree) money!
But here's the important thing... you can also waste F money by spending it! F money then becomes E money. You do this by opting to spend F money on luxuries (E) rather than reuse it to increase your money inflow -- a classical mistake!
Click here to learn more about Free money
Click here to go from this cashflow diagram overview to increasing money flow in your cashflow pipe
Source : http://www.cashflowclever.com/cashflowdiagram.html
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