Why do you need a cash flow analysis, and how can it help you with income generation to live a more comfortable retirement?
In this article:
- The Cash Flow Crisis in America
- Meet “Mr. Income”
- The Solution Is More Cash Flow
- Introduction to the Three Pillars of Income Investing
- Understand the Rules of Income
- It’s Not What You Make, It’s What You Keep That Matters
- Common Sources of Income
- Investing Your Money
- Other Avenues
- The “Mr. Income” Investment Process
- Final Thoughts
How Making a Cash Flow Analysis Can Generate More Income
The Cash Flow Crisis in America
Cash Flow Definition: This is the movement of money being transferred into and out of an entity, whether it be a business, organization, or individual.
As you near retirement age, you begin to look at your financial situation through a microscope. After all, you’re nearing the time when you have to stop working actively.
Retiring can significantly affect your monthly cash flow. How does your net cash flow look?
If you don’t like what you see, don’t worry, you’re not alone. Here are some frightening statistics.
Transamerica reports that baby boomers have saved a median of $164,000.
$164,000 only produces about $6,300 in retirement income (assuming a 4% annual return) in your first year of retirement.
This means these retirement accounts only produce $525 in monthly income.
Add in the fact that the average Social Security monthly benefit is just over $1400 and you are looking at roughly $2,000 per month in retirement income.
This is simply not enough income to survive.
If you are not working with at least $1,000,000 in your retirement account, you could benefit from a new approach.
Let us help you improve your net income with these cash flow tips from “Mr. Income” Zach Scheidt.
Meet “Mr. Income”
Hi, my name is Zach Scheidt.
But my colleagues call me “Mr. Income” because of my uncanny ability to consistently find the best income plays around the world.
You see, I started my career at a prestigious hedge fund, in Atlanta, GA.
Within a short time, I was managing the portfolios of some of the wealthiest people in America.
These wealthy elites gave me one directive: Find the safest ways to generate massive income consistently.
If you have any experience with wealthy people, you’ll know, they are not the easiest bunch to please.
They’re used to getting their way and won’t settle for anything less. But, luckily, I ‘m not easily shaken.
Not only did I do what they asked, but I also produced above and beyond.
This is where I got my nickname “Mr. Income;” and I must say, I think it has a nice ring to it.
However, I wasn’t making a positive difference in the world.
Yeah, life seemed good, I was making great money, and I was gaining tremendous notoriety with America’s wealthy elite. But, I knew deep down I had more to offer.
Helping the rich get richer is like giving Tiger Woods free golf lessons. (Very unnecessary!)
So I decided to put my skills to better use.
I left my prestigious career as a hedge fund manager and took on the challenge of educating the hard-working, blue-collar backbone of our great nation.
I want to help those who have worked hard their entire life but still come up short when it comes to their retirement goals. It’s those people who need help with income investing.
It’s my dream to help these people live their golden years doing what they love. These are the very people that deserve sound information the most, yet they are the ones who struggle to obtain it.
The Solution Is More Cash Flow
You might be thinking there is no way to achieve your retirement goals.
It might seem like an impossible task to fix your retirement portfolio that represents a lifetime of work. I can see from that perspective it might seem like a daunting task.
After all, if you are like most retirees, you’ve worked hard to make a respectable income. You focused on saving as much as you could spare, and you even invested a percent of your income into your employer-sponsored retirement accounts.
Yet you still came up short of your retirement goals.
This is actually a very common issue, and it doesn’t mean all hope is lost.
All you need to do is focus on a different approach. One that is rooted in income generation. If you increase your income, you can increase your inbound money versus cash outflows.
Did you know that every $100 you add to your monthly income is the same as adding $30,000 to your overall portfolio? (Assuming you follow the 4% withdrawal rule = $30,000 * 4% = $1,200 Annual withdraw or $100 monthly withdraw.)
So instead of focusing on mass accumulation, shift your focus to income.
To get started, I want to share one of the most powerful ways to generate consistent income. This is something I learned from my mentor at a prestigious Atlanta hedge fund.
It is a simple concept, but don’t be fooled by its simplicity. This is the reason I have the nickname “Mr. Income.”
Introduction to the Three Pillars of Income Investing
This strategy relies on just three criteria.
I call these the Three Pillars of Income Investing, and if followed correctly, these can add thousands of dollars in income to almost any portfolio.
1. Low Level of Risk
The very first thing to look at when viewing a potential income investment is the level of risk.
For an investment to be truly attractive there must be a low level of risk.
One of my favorite ways to accomplish this is to limit my investments to only companies with an established track record for success.
This way there are very few surprises. With established companies, you are able to evaluate two crucial things.
- What makes them successful?
Having the ability to pinpoint why a company is successful is something that should not be overlooked.
Armed with this knowledge, you are more likely to achieve success with your investment. You’ll be able to earn income and limit the risk of losing money.
- What will allow them to continue to be successful?
Once you know why a company is successful, it is extremely important to determine if the success is likely to continue.
Established companies, with proven track records, offer many clues that can answer this question. Some companies grow exponentially in a few years but suddenly experience a downturn in revenue.
Investing in a successful company that is likely to keep its momentum going will help you improve your own financial statements.
You simply need to pay attention.
2. Room for Growth
At this step, you now have a company that is successful, and you need to determine if that success is likely to increase.
How much room does this company have to grow?
This is answered by determining how much of the market the company already serves. Even if the company is successful, that doesn’t necessarily mean it is a good investment. You can have a company that has a unique product, serves the market well, is poised to dominate for years to come, but already has the majority market share.
The fact they have a majority of the market means there is very little room for growth. This is why it is important to always make sure there is enough room available for growth.
I typically aim for companies with small to medium market share. This way, they still have a massive room for improvement with their growth rate.
3. Pay an Attractive Amount of Income That’s Reliable
The final step is the most important.
The whole reason you are implementing this strategy is to produce consistent income to give you a positive cash flow.
Therefore, you need to focus on companies that pay an attractive and reliable income. When investing in companies, this is known as paying a dividend.
Some companies simply do not pay dividends, so, even though they may fit the other two pillars they are not smart investments.
All three pillars MUST be present. NO EXCEPTIONS! (Sorry for the harsh tone, it’s just really important.)
But how do you know if income is attractive?
These pillars will help you look for a company to give you the biggest payoff with the least risk involved.
Understand the Rules of Income
So, now you know how to look for the best investments to grow your income. You also need to know how to manage it and the rest of your investing activities.
Here are some basic rules of income:
1. Must Keep Up With Inflation
The source of income is only as good as its ability to keep pace with inflation.
Inflation is defined as a general increase in price and fall in the purchasing value of money. If your income source does not keep up with inflation, then it is losing purchasing value every year.
Over the past 20 years, inflation is typically between 2-3%. So, at worst, your income should see a 3% increase annually to keep pace.
2. Must Have Room for Growth
This is the same as one of the pillars of income investing, but it is a truth about money overall.
Your income must have room to grow. This simply means you should always try to obtain income that is not capped out.
3. Must be Diversified
Have you ever heard the phrase “Don’t put all your eggs in one basket?”
Well, this statement definitely applies here. You want to make sure you are not putting all your money into one investment.
No matter how good you are, or how much research you do, you can still make a bad investment. Unless you have superpowers and can predict the future it is wise to spread your investment out over multiple companies.
It’s Not What You Make, It’s What You Keep That Matters
Uncle Sam is always lurking in the shadows ready to pounce on any income you make.
Collecting taxes is his top priority. And he doesn’t care if you overpay or not. He simply collects what he feels you owe.
It is your job to make sure you are making every legal effort possible to minimize your tax burden every year.
Make sure you are cultivating a strong relationship with a highly qualified accountant to determine your exact tax rate; it will pay off in the long run.
Common Sources of Income
Aside from investing in successful companies, there are several other sources of income for Americans.
1. Having a Job
This is by far the most common way to make income.
We are all taught to work our entire lives for a living. This is how most people pay their bills. This source depends heavily on someone else’s opinion of what you are worth.
To help sway this opinion on your side, you can focus on developing mastery in a high-demand field. Being an expert in a certain area can also help you get promotions or increase your wages to improve your financial metrics.
Increasing your pay allows you to put more away in your retirement accounts. If you are already retired then you most likely want to avoid having to use this as a source of income.
2. Starting a Business
Another path to income is to focus on starting a business.
Here you will be relying on how you or your business are perceived by a group of people. If people like, want, or need your product or service then you will be in good shape.
There are many resources available all over the Internet on how to start a business. If you are serious about it, I recommend checking some of them out.
At a high level, you need a few things to start a business.
- Product. You need to have an idea of what you will sell. You need to determine what product or service you will bank on.
- Buyers. You need to have a group of people interested in buying it.
- Fulfillment. And you need to have a way to supply what you want to sell.
This is a super-simplified view of the structure of a successful business.
3. Receiving an Inheritance
This is not a major source of income, but it might be a major game changer for those lucky enough to receive an inheritance.
One of the stresses that come along with an inheritance is how to manage the money. This sounds easier than it actually is.
You instantly gain responsibility for more money than you ever had before. Sometimes it is even much, much more.
The key is to not panic, seek expert help, and diversify your portfolio. Also, just remember that this is a blessing instead of a curse. You can choose to use your money for good or bad, but the choice is yours.
Investing Your Money
One of the best ways, in my opinion, of course, is to invest money you already have.
This is essentially turning your money into little workers that go out and bring more money in on your behalf. So when you make your cash flow analysis, you’ll see an improvement in inbound income compared to your expenses.
I have already discussed my main strategy, which is to invest in companies that fit my Three Pillars of Income, but there are many other things you can invest in.
Here is a short, not comprehensive, list of some of my favorites.
- Real Estate and Real Estate Investment Trusts (REITs)
- Index Funds
- Companies on the verge of a buyout
There are literally hundreds of places you can go to get extra income and improve your next cash flow analysis.
When I wrote The Big Book Of Income, I explored 47 different sources of work-free income almost anyone can get.
If you have a chance to snag a copy, you won’t be disappointed.
But for now, I want to share my main process with you.
The “Mr. Income” Investment Process
Step 1: The Research
There are a lot of options to get good quality research for top income plays.
Some are free. Many cost money. And some even cost a lot of money.
I have one source that is about $20,000 per year.
However, even with that, one of my favorite low-cost options is Morningstar.com. This source provides a great place to evaluate potential companies to invest in.
They provide a comprehensive list of investments categorized by the type. This helps when compiling a watchlist.
A watchlist is essentially a list of investments you are following to see if you can spot any areas of opportunity. This is the lifeblood of the research process.
I always create a watchlist of companies that pique my interest as an investor. This brings me to the plan.
Step 2: The Plan
I like to focus on brand name stocks that pay good dividends.
These are stocks that have strong brand recognition (think Apple, Microsoft, Facebook, etc…) I also look for companies with a solid track record, strong sales, and earnings.
Once I find a strong brand with a good track record I have one more criterion that must be met:
- There must be a strong outlook toward the future. I am not looking to invest in companies whose best days are behind them.
- I want to find companies that are poised to continue their dominance for many years to come. This provides the number one thing income investors have in their favor, which is Time.
- The longer we can hold a solid investment that pays a good amount of income the more money we can make.
With those three things met, I move onto the execution phase.
Step 3: The Execution
This phase is all about when to actually commit to investing in a company.
There is an art and science to this process. We already went over the science aspect with the previous three steps.
To recap, they are: find a strong brand, make sure they have a solid track record, and ensure they have a solid outlook for future dominance. Now, it is time to focus on the art aspect.
I carefully follow the watchlist looking for any signs that a company is being undervalued. A sudden drop in price for no reason is a good example.
The key is to become so familiar with the watchlist that you recognize any time something changes. Once you follow your watchlist long enough you will begin to recognize patterns.
Just trust your instincts here.
Once you commit to something just know you are playing for the long run. Which brings me to the final aspect of my process:
When to get out.
Step 4: The Exit Strategy
Like I said earlier, time is on your side.
Income investing is not about quick turnover. Ideally, you want to hold a strong, high dividend paying stock for as long as possible.
Following the first three steps significantly increases your odds of investing in strong companies. However, every now and then, things will not go according to plan.
In this case, it is better to cut your losses. One of the biggest things that I look for is any material changes in dividends or earnings. For example, if the company suddenly cuts its dividend yield in half, that could be a good indication to get out.
But this is not always the case.
You have to trust your instincts here.
By now, you have followed this category for a while with your watchlist, and have gained insight into common patterns. Use this information to determine if the investment is continuing to operate as planned or if there is a sudden change in how they operate.
If something seems fishy, then it probably is. There are plenty of investment opportunities, so there is no need to hold onto a loser hoping it will come back.
Money is one of the most crucial things to our survival.
Almost everything costs money. And at the heart of it, any act to acquire money is essentially income.
That means income generation is one of the most important skills to master. However, our schools don’t really teach this skill.
I have made it my lifelong mission to help as many people as possible improve their financial situation by getting more income.
These tips can hopefully improve your net cash flow. You’ll also be able to save more for your retirement income.
I hope you got value from this guide, and more importantly, I hope you will take what you learned, apply it, and improve your financial situation.
How does cash flow analysis look right now? Share your retirement income concerns with us in the comments section below!
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