Page 12 - Demo

3RD
PILLAR OF HEALTH
THE THIRD SECRET
Cash Flow ... the Power of Leveraged Income
Let’s take a quick look at money, or at least the most important part of money ... cash flow. Most folks would like to be rich, be a millionaire, to be financially independent. Being a millionaire is based on net worth or having $1,000,000 of assets. Being financially independent, defined as having enough income to live on for the rest of your life, is obviously based on cash flow, which may or may not be based on your net worth.
Net Worth and being rich
Let’s say at the age of 40 you become concerned about retirement and decide to become a millionaire and be financially independent. If you put $1500 per month into investments at a 6% return, at age 65 you would be a millionaire. Then you retire and need $5,000 per month plus social security to live on, which would be a minimal lifestyle. Your $1,000,000 of assets would last until you are 78 years old, which is great because that is the average lifespan of a man in the United States. For women, not so good as you have a statistically longer lifespan. But what if you aren’t average? What if you live to 95 years? If you did, you would need close to $2,000,000 when you retire at 65 to be financially independent with $5,000/month, which means you need to put $3,000 into investments each month starting at age 40. The next question is whether $5,000/month would be enough for 20 years with inflation
eating away at its value each year. Probably not. Today, more than one-third are retiring without any savings ... which translates to not retiring at all.
Becoming financially independent at age 65 through saving each month from a job is tough to do regardless of whether you start at age 20 or 40. This, of course, is a simplistic example and can be argued forever by financial experts, but the point will always be the same...it is challenging at best.
The main point here is to realize that when receiving cash flow from net worth, you are living off not only the growth of your investments, but on the principle of the investments. Living off your principal is never a good idea because you eventually end up with nothing. However, you can create cash flow that doesn’t deplete your principal with dividend generating equities as dividends would be considered cash flow. However, dividends tend to generally fall in the 2-4% return area, so your equities would need to be about $4,000,000 to sustain your $5,000/ month withdrawal.
As a side note, don’t get sucked into financial advisors who indicate you can get consistent returns of 12%. Depending on whose analysis you subscribe to, you will find claims of an average return around 4% to as high as 9%, but these assume you put money in at the beginning and leave it untouched for decades.
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The Secret of 1982