Diversified Cash Flow: More than ONE stream of income....

An important principle in "Kicking Ass in the 21st Century" and living life your terms is diversified cash flow.

For someone a person who is an employee of someone else, diversified cash flow means having another stream of income beyond your paycheck.

For someone who has their own business, it means having another stream of income beyond the profit you take from your business.

For someone like me (and I hang around a lot of people who have my type of income and lifestyle), it's having another stream of income beyond a residual stream of income.



You have to understand that I know a lot of people who work when they want, vacation when they want, and a lot of them are "spenders."  I mean that they spend a lot of money, because they are "banking it" right now instead of saving it or investing it.

Diversified cash flows happen normally when your main stream of income is residual or passive income (defined as income generated by a firm after accounting for true cost of capital). This a "fancy" way of saying income that flows in without effort by you now and based on efforts of the past.

Once you have residual income, then you pay your bills and take the extra money (and extra time since the money is flowing in from past efforts and not current efforts) and reinvest it into other income streams that generate more residual income.

After discussing this concept, the normal response is "I already know all of this" and my response is then "Why aren't you doing it?"  :)

I must admit that I break my own rules and when I do a yearly review of my personal and business expenses, I often say to myself, "Why the hell did I spend all that money on that? Did I really use it or was it waste? Did I really need it? I could have invested that money into more residual income assets."

I suck as bad as everyone else at times when it comes to "not blowing money," but at least I can say that I evaluate it and change it.  :)

The point is that on my road to what I consider wealth in "dollars and cents" terms, I know I need to take the money and time I have carved for myself and reinvest and create diversified cash flows.  Right now, I have cash flows from six different sources and counting.

The other part of increasing wealth is the "diversified" part, because if I can't face that one or more of these six streams of income can "ebb and flow," than I am "kidding" myself.  I have watched these different streams of residual income go up and down based on what is going on in the economy, level of effort I put, and other factors.  When a residual income stream goes up or down, the others fill in the gaps.

The experience that most people have is: getting a paycheck or not from my employer. It's either unemployed and collecting a check from the state or collecting a check from an employer.  Many businesses owners are a credit card away form bankruptcy (especially in this great recession.)

Residual income and have diversified streams of "it" is critical for me and still being retired since I was 32.