Cash-Flow Intelligence

By Morris Kaplan

Cash flow is the driver of financial independence and enterprises. Positive cash flow is generated by productive enterprises and wealth creators. Why? Because they purchase assets that appreciate in value and generate income - businesses, products and services. Why can't families do this?

The answer is they can and they should.

Cash flow should be positive, but cash flow will only be positive if, in Edward Gibbon's words, "my income is superior to my expense". But here is the one critical element that separates the rich from the rest, and it's not their higher income or bigger houses: it is that further cash flow can be created by buying assets with the surplus income. In other words you can create an assets column in your personal finances, just as wealthy people and enterprises do.

The brutal truth is that you probably can't tell why you might be struggling financially; you earn a good income, but you just can't seem to get ahead. You're not alone. Most people cannot tell you why they struggle because they don't understand the concept of cash flow. That's why, regardless of the level of income, most people tend to live at 100% or even 105% of their net income. They may be well-educated professionals but still essentially financially uneducated. They have not got the message that assets, shares, property, and businesses produce income, dividends and profits. Financially independent people, on the other hand, have got it: having their money working for them is more important than working hard to make more money. 

Excerpt from Five Years to Financial Freedom by Morris Kaplan, published by Hardie Grant.