You’ve probably heard of a dozen ways to plan for retirement, maybe even from your financial advisor. While any plan is better than no plan, the one method you’re unlikely to hear about is cashflow investing. It’s one of the most sound ways to build your cash flow, rather than just hoping to accumulate enough money. There’s so much more to cashflow than simply socking money away in different assets, so what makes it so great? To set the stage for cash flow investing, we need to take a look at the past and how the cultural perception of retirement planning has evolved.
The Three-Legged Stool
Before the era of ERISA (Employee Retirement Income Security Act), retirement planning was modeled as a “three-legged stool.” Retirement was the seat, and that seat supported by three legs — savings, pension, and life insurance. The first two legs were built by the job you worked, ideally for as long as possible. You’d save a portion of your paycheck for retirement, and once retired your employer would provide you with an income as well. Whole life insurance, the third leg, allowed for legacy planning and provided a cash value account that could be accessed when needed — for loans or liquidation. The three of these legs combined offered a stable and balanced retirement plan.
Although the stool was sturdy, it was cast aside after ERISA in the 70s, which changed the whole ball game. As a result of this act, the 401k was rolled out as the optimal retirement vehicle. The 401k itself was designed so that companies could pay employees less in pension, and take pension plans off the books entirely. Less out of pocket cost and no liabilities made very happy business owners. Employers were able to shift their responsibility back onto the employees, by encouraging them to contribute and invest in a 401k. More responsibility is great, right?
So Who Wins?
While the 401k encouraged employees to take personal responsibility in their retirement income and offered a few upfront benefits like tax-deferrals, the employees don’t come out on top. The real winners in this scenario are the employers — who are no longer pouring money into pension plans — and the guys over on Wall Street. The 401k allowed not only pension money to be rolled into the stock market, but employee’s savings accounts as well. Instead of saving money, even the average guy became an investor by putting his money into a 401k. A crazy amount of money flooded the stock markets, and Wall Street reaped the benefits. Just like that, two legs of the retirement stool vanished.
Additionally, life insurance became the bad guy overnight, though its performance and purpose have not changed. People were convinced by the upfront promises of the 401k — tax-deferred savings and the opportunity to invest and win big sums. They ignored the risk. With promises of large returns, life insurance lost its appeal and the phrase “buy term and invest the rest” became commonplace. Term insurance was cheaper, and therefore believed to be better, and allowed people to sock more money away in their 401k.
So this three-legged stool concept was completely swallowed by Wall Street — no pensions, no savings, and no life insurance. The 401k and stock market became the end-all-be-all of retirement planning, and the mentality surrounding retirement changed completely. While the three-legged stool concept was based on diversified income, the accumulation approach requires you put all your eggs in one basket.
Meeting Uncertainty With Uncertainty
Another element the average person seems to misunderstand is the nature of tax-deferrals. Sure, you aren’t paying taxes upfront, but you will pay taxes. And when you have to pay those taxes, your money has likely grown by a significant amount. Which means you’ll pay on the harvest of the money, not the seed that you planted to get there. Additionally, you open yourself to the uncertainty of how the tax law will evolve — taxes are an unknown variable. Just like that, the government also has a vested interest in your 401k. So far, everyone but the account-holders are on top.
The 401k is an accumulation approach to retirement and is completely based on hope. You hope that the markets will go up, you hope that you save enough to retire, and you hope that this will turn into an income that lasts the rest of your life. That’s a lot of uncertainty for a significant portion of your life.
So what is cashflow investing?
At its core, cashflow investing is a method of investing in assets that align your investor DNA, knowledge, skillset, and your passion to create a monthly income.
Cashflow investing gives you control, instead of handing the reins to Wall Street, the government, and/or your employer. Control gives you access to the assets and people you want and can keep more of your dollars in your own hands. You can directly assess what is working and what isn’t, and make adjustments as necessary. There is no need to hope that it will work 40 years down the road. You eliminate uncertainty.
The Golden Goose
Think of it this way — cashflow investing is like taking care of a golden goose. You keep it healthy so that it will provide many eggs for years to come. When you’ve produced enough, maybe you even acquire a few more geese. You end up with a whole flock of happy, healthy golden geese.
Accumulation, on the other hand, is like taking the golden goose, fattening it up and eating it until there’s no more. It may last for a short time, and serve you well in the process, but once it’s gone…it’s gone. Which sounds more sustainable to you?
Cashflow investing equals freedom. We’re consistently taught that time equals money, but it doesn’t have to follow that rule. You must stop trading your time for money, and forge your path. Saving is a great step, but you cannot save your way to the promised land. Savings alone will never beat inflation and the rising cost of living. Cashflow keeps up.
The New Definition of Wealth
Cashflow investing brings a new definition of wealth and how wealthy you are. It is not based on your net worth, but rather, your cashflow.
Ask yourself the following question, “If you stopped working today, how long would you be able to maintain your current standard of living?”
If your answer is forever, you are infinitely wealthy.
Wealth is not measured in money anymore, wealth is measured in time.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
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