Cash Flow
Cash flow is one of the most important metrics whether you are an individual or a company. Having a strong and diversified cash flow not only keeps you comfortable, also opens up doors to all kind of possibilities in both bull and bear markets
Cash-in/Cash-Out
For many of us, we work a day job earning a steady wages and salaries (cash-in), and then we have bills to pay (cash-out): taxes, mortgage, rent, utilities, food, phone bill, internet bill, Netflix, HBO, Disney+, YouTube, Apple TV+, Apple Music, Spotify, it is getting out of control!
The formula is very simple, make more money from more than one source, and spend less.
Why multiple sources of income is important
Imagine these scenarios
- Crypto Maximalist: You work for a crypto startup, you get paid in BTC, all your investments are in crypto: how do you feel if you had to cash out BTC after it is down by 80% to pay for your day to day expense valued in fiat? Now you have a choice, find a job to make fiat to pay for your day-to-day, cash out crypto to pay for your day-to-day at a huge discount, move back to the basement so you don't have to deal with physical world for now
- You have a day job paying you a steady income that covers your day-to-day expenses, with left overs to DCA into crypto: now you have fiat-in matching fiat-out, there is no "currency exchange rate -or- market risk", having a source of income that is not crypto allows you to take advantage of crypto bear market
- You have investments in stocks or bonds or savings: Many stocks pay you dividends in fiat, bonds and savings accounts pay you interest in fiat, you don't have to sell your stocks or bonds to buy crypto, stocks or bonds generate additional cash flow and you can buy crypto with these additional cash flow
Why diversification is important (examples only, not a financial advice)
Let's all be honest here, let's take the March 2020 low as a starting point, to today.
- BTC went from about $3400 to $17000 right now, that is still a solid 5x
- There are energy stocks (remember crude oil future went to negative briefly?) that appreciated more than 10x during the same time period, with improved fundamentals and cash flow
- There are dividend paying stocks that appreciated over 9x during the same time period, with improved fundamentals and increased capital returns
- Even AAPL went from $63 to $142 (2.24x) during the same time period
Crypto tend to go up and down at the same time, but stocks do not always follow the same pattern and volatility.
By having a wide variety of investments and different asset classes, you have the flexibility to adjust your asset mix when one is over-priced while the other is over-sold.
BTC needs 4x to go back to the previous ATH. But 4x is very possible outside of cryptocurrency.
3 quickest way to improve cash flow immediately - cut spending
- Debt repayment or refinance, especially if you are carrying credit card debts (which you shouldn't)
- Review all the out of control subscriptions, reduce it down to 1 or 2
- Keep a budget, to review where you spend money. Eliminate restaurants, daily coffee (brew your own), World Cup in a bar (if you really want to channel more money to investments...), you get the idea
Mortgage debt vs. Investments
With interest rates going up and up, it is time to think about paying down the mortgage versus keeping your investments - especially if your investment's expected return after tax, is less than the mortgage interest rate. Have a target price where you would be happy with the the investment return, to rebalance your finances. With less mortgage balance left, you may choose to pay off the mortgage sooner, or ask your bank to potentially reduce your mortgage repayment amount to increase your cash flow.
Final Take Away
Have crypto, but have more than crypto.
Diversified income streams allow you to capitalize and prosper in different market conditions.
Continue to build the HIVE community, and stack HP :)
Posted Using LeoFinance Beta
