Business and Management

How the Rich Manage Their Cash Flow?

Again, the key difference that sets people apart in their ability to create wealth is not just how much they earn but more importantly, how they manage the cash that flows through their hands. Rich people manage their money very differently from the average Joe.

They have a very different set of habits in the areas of savings, investments, and disbursements. To become a millionaire, you must learn and adopt the cash flow management habits of the rich.

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You must first understand the concept of 'asset' and the fact that some assets help you accumulate wealth while some other assets reduce your wealth. Assets are physical or intangible items that you own. They can be classified as cash flow Positive Assets (Assets Cash +) or negative cash flow Assets (Assets Cash).

Sometimes to purchase an asset like a house or a car, you have to take a loan from the bank. When we borrow money, we incur a liability. As you know, the obligation to charge extra interest payments you have to make.

Positive cash flow assets (Assets Cash +) are assets that provide you with positive cash flow and / or capital appreciation even after deducting interest expense from liabilities incurred. Examples are stocks, bonds, profitable small businesses, properties with positive results, intellectual property, fixed deposits and so on.

Assets negative cash flow (cash assets) are those that depreciate in value and / or incur additional costs such as maintenance or interest payments for liabilities incurred. For example, if you buy a house and rent it out for $ 2,000 per month but had to pay interest on loans of $ 2,200, it will be a negative cash flow asset.