"What's your net cash flow?" my friend Erich asked me one day.
I was recently graduated, got a great job and had a terrific salary. I was feeling pretty OK about my financial position for a 23 year old guy.
"Great!" I replied.
"But you're not answering the question" Erich said.
"What's your NET cash flow?"
Now I realized that I didn't understand the question. So, without trying to show I did not understand, I asked
"OK, tell me... what do you really mean?"
"Many people think that earning a big salary is the same as having a big remaining cash flow."
That's when I realized I've been totally mistaken.
Net cash flow is simply money left over after everything possible have been deducted or spent.
Let's look at our Cashflow Pipe to understand this concept.
Your net or disposable cash flow is F(ree)... surplus or remaining money. It's not money for CD's, MP3 players and other luxuries.
From our diagram...
Your net cash flow (F) = salary (W) + passive income (P) - all expenses (E)
I can already hear you ask...
"But why do I want Free money?"
To build assets. To use your disposable cash flow to earn again and again.
Money tip
The fastest way to create Free money - take an amount from your paycheck the moment it's paid... before spending a penny. Then deposit this amount in a separate account as a nest egg for building assets.
Spend only the remaining part of your paycheck.
More about your net cash flow...
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