WHY THE CONCEPT OF CASH AND WHAT IS FLOW?
before understanding any topic on cash flow a person must understand the basics of finance which is the main difference between asset and liability, where we can define an Asset as the process of flow of money inwards whereas liability means the process of flow of funds outwards from your pocket.
if we can focus on the asset allocation process, we expect the cash flow from the asset, any asset always produces cash, and if it does not flow to your pocket, it is a liability.
what can be observed is that people do get confused in comparison of profit and cash flow, they basically think both are the same but definitely, they are not, let us understand the fundamental difference between profit and cash flow.
when you sell any product or service then after selling you need to deduct the value of your initial costings on that product or service, the amount that remains after deduction is basically known as income, and after paying the taxes and amortizations the remaining amount is considered to be profit.
cash flow is basically generated by an asset that flows inward to your pocket on which you don't have to pay any taxes since its pre-taxed and a cash flow indicates your asset( business) is running on cash reserves and has the ability to tolerate risk.
TYPES OF CASH FLOW FROM ASSETS-
- RENTAL INCOME FROM REAL ESTATE
- ANY BUSINESS MODEL FOR SUCCESSFULLY BUYING OR SELLING ANY PRODUCT OR SERVICE.
- STOCKS THAT PAY OUT DIVIDENDS
- BONDS THAT PAY INTEREST
- INTELLECTUAL PROPERTY SUCH AS ( BOOKS OR ANY PATENT) GENERATES REGULAR CASH FLOW
CASH FLOW FROM REAL ESTATE-
we have already explained in an article in-depth details about the fundamentals of real estate if you want to learn investing in real estate then please click here.
here we will understand the cash flow from real estate, real estate does not mean buying lands or selling them just by flipping lands you don’t get cash flow that is known as capital gains, in order to generate the cash flow you need to rent a real estate to get the positive cash flow ( remember a cash flow is an amount that comes to you after deductions of all taxes and amortizations.)
in order to get positive cash flow which anyone can a person needs to have financial knowledge which is basically better than moving on to any college degree or utilizing your precious time there. since the upcoming time urges you to be financially independent.
CASH FLOW FROM BUSINESS
a business generates cash flow after tax which determines the company’s liquidity and how it works, the more leverage a company gets the better off its cash flow, the negative part of the business is that your business can be profitable but has a positive cash flow.
CASH FLOW FROM INTELLECTUAL PROPERTY
the cash flow that you get from intellectual property such as books, blogs, or any patent created by yourself generates definite positive cash flow but after certain deductions on taxes.
CASH FLOW FROM STOCKS
when you buy a share of a certain company what you just need is to overview with a deep analysis of the industry you are choosing and the right segment of stock you are buying which will provide you definite confidence in the company and the more analysis you do the better it gets for you before purchasing any share.
which in the future will provide better cash flow in the form of dividends, which after a certain range gets taxed, and if you can control taxes you are there to become the best investment.
now you see everything comes up to a point and that is you ” THE ONE WHO IS READING IT” Just move on and start getting financially knowledgeable and improve your life.