Cash Flow: The Two Most Important Words In Wealth Building
Transcribed from video.
What are the two most important words in the world yeah I said it and I’m being brave the two most important words in the world that’s today’s episode let’s dive into it hey everyone I’m Clayton Morris long time real estate investor and financial freedom fighter and the whole purpose of this channel is try to help you change your paradigm build financial intelligence you know all the stuff that we weren’t taught in high school still we weren’t taught in junior high school I don’t know about you but I wasn’t taught about financial intelligence or passive income or how to buy performing assets in high school. No way, no way and if I would maybe it’d be a totally different person.
I would have way more real estate, maybe. I would have started when I was 20 years old, but instead I waited way longer than I would like. So if you are just getting started on this journey and you are 21, I get emails from people all the time to tell me hey Clayton I’m 21 years old and just getting started, and I’m thinking my gosh, you are so far ahead of the game. Congratulations to you for making yourself financially intelligent and getting out there and taking action.
So today’s episode is all about the two words that should define everything that you do on your investing journey. The two most important words in the English language are the two most important words in the world. I don’t care how you translate them. Can you figure it out? Can you figure it out what do you think the two most important words in the world are? Cash flow.
Cash flow, why? Well because rich people understand that when cash comes in from performing assets that it has to flow properly out to those performing assets. When you have cash flow, then your performing assets are providing you with passive income every month in order to pay for your expenses. We’ve talked about it in other videos, we’ve talked about it before how poor people think and how middle-class people think about income. They’re focused on income, but for those people income comes in and flows to liabilities; to car payments, to rent, to mortgage payments, to other things, to other liabilities in their lives. They buy things they cannot afford.
Cash flow are the two most important words because any smart investor, any wealthy person who really understands their balance sheet and their lot and they’re in their financial statement knows that cash flow is king. That the money coming in is way more important than anything else. That’s it cash flow. I could simply stop the video now but I’m not. I’m gonna break it down a little bit more for you and I’m gonna explain how this all flows.
So take a look at this. This is a typical income statement and my great friend Tom, a great CPA has laid this out very simply. So if you’ve not seen this before, you must be living under a rock. But I’m gonna show it to you now so you can really visualize how this flows. If you’re listening to this on audio I encourage you to check out the video version of this so you can really see how this all flows through. But if you’re driving, don’t worry about it. I won’t hold you back.
So let’s start with our income statement. Okay knowing what income is coming into our family and what expenses are going. Now this is what most people focus on. Most poor people and middle-class people simply focus on their income statement. They don’t even have a balance sheet. They simply see their income statement from their job; money coming in and flowing out through their expenses; through their car payment, through their house payment, and out through their expense column. And they have nothing to show for it. Notice what we’re bypassing when we do this. When that cash flow is coming in and flowing out through our expenses guess what? We don’t have any assets.
Now the difference is that the rich buy assets and their money works for them. They don’t work for their money. So now a rich person then probably don’t have a job, but if they do, they’re using that income in an intelligent way to buy assets. Okay so if they do have a job and I’m sure many of you watching right now are being very smart about this. You have a job but now use that income. I’m not saying to quit your job I’m saying to take that income and have it flow that cash flow flowing the right way. Not into liabilities, okay? Poor people and middle-class people purchase liabilities. You don’t. If you watch this channel, you’d no longer buy liabilities. okay? All right.
Now, let’s take a look at this in terms of financial intelligence and a savvy wealthy person who understands the power of cash flow. Let’s look at the difference on their balance sheet and income statement. Take a look at this. So from their balance sheet their assets; those rental properties or gold or Bitcoin or whatever they’re investing in. I don’t care. I invest in real estate because it produces a monthly return for me and every month I’m able to bring in cash flow from those tenants on my properties. That’s what we do.
So from those assets that money is flowing out as income and our liabilities are flowing to our expenses. Okay, see the difference here? Assets flowing to our income so now we’re creating income not from a job, although we could, but our assets are providing that income and our liabilities are paying down those expenses. So that’s why I’m saying the poor always focus on expenses. They’re always using the income to pay expenses down. They don’t know the difference between assets and liabilities. So any money they get from that paycheck job where they go up to the counter and wait for that paycheck every week are going right to their expenses and they live, have you’ve heard, paycheck to paycheck? I know I did.
I was in credit card debt.I it wasn’t until I understood the power of buying assets using my income from my job to make a down payment on a property or purchase a property outright 40 50 60 thousand on a house that could produce eight hundred, nine hundred, dollars a month in rent from a tenant that would cover expenses. Now I imagine doubling that. So now I’ve got two of those properties and it’s bringing in you know eighteen hundred dollars a month in cash flow. Now imagine tripling that. How many of those would it take for you to achieve financial freedom? That’s the equation; that’s the key to success, and that’s the key to understanding that cash flow are the two most important words in the world English language. Focus on cash flow and focus focus on buying those performing assets.
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