I’m in financial trouble, and it doesn’t feel good. After buying my house in 2023 and living off the mortgage for six months, I promised myself that I would never go back to this situation. However, I am here. Part of it is just bad luck, but part of it comes down to poor planning on my end. I never expected a $20,000 capital call in the country during the winter holidays. Wth.
During my recent financial HopHinenes, that unpleasant feeling where you try how hard you try, you can’t seem to move forward, I was able to achieve. Even if my investment portfolio is higher with the S & P 500 this year, I still feel defeated by the string of surprise expenses, especially with my car being repaired and there is no clear end in sight.
Honestly, Me if feel good. If the stock market hands you hundreds of wins, those gains should yield a few thousand dollars in unexpected debt. But that’s not how the psychology of money works. That’s not a rare wealth-building method that works.
Cash flow and investment are two completely different financial instruments with different uses and different spiritual effects.
Let me explain.
Cash flows are current, investment returns are objective
Imagine you have a $1 million portfolio that goes up by 15%, or $150,000. It’s a good year. Add a slice of cheddar cheese to your next burger. Remove and raise your finger with your net that suits you best.
Now let’s say your car coughs up a $2000 repair, and your house throws in an $8,000 plumbing problem for good measure. In a sense, you can sell $13,000 in stock to cover $10,000 in back taxes. It’s easy.
But spiritually? It sounds bad.
- You are robbing yourself of your self-esteem. And we all know how to steal badly.
- You incur income tax that you don’t need to pay if you have enough cash flow.
- You are violating the objective of those investors – long-term financial security.
Cash flow is meant to manage the chaos of everyday life. Investment gains are meant to build freedom for decades, not today’s fires.
That’s why you can be Six figures On paper, you still feel financially stressed from several thousand dollars of unexpected debt.
That’s where we get into financial trouble: the meeting fee
Some people struggle to build more wealth because they use investment accounts as a large holding-all of their cash. There is no separation of purpose.
If your retirement savings are your emergency fund, college fund, car repair fund, and vacation fund, you’re making sure it’s for the long haul. When you start “borrowing from your future,” it becomes a habit.
This is why mortgages work so well. It forces you to keep even though you can’t resist eating after 8 pm you pay or lose the house. There is no room for mental rust.
The concept of “saving and investing the difference,” over decades when the employer is struggling. There is always something to spend money on, regardless of your investment. As a result, housing insecurity sometimes follows.
To protect yourself, create physical barriers between accounts.
Creating barriers between current money and future money
The more you can get your money back, the better.
1. Have a dedicated cash flow bank. This is where your payments come in, and bills are paid. Its purpose is liquidity, not return. Of course, your bank manager would love to open an investment account and many other financial products. But try to keep it simple with your cash flow bank.
2. Keep the investment in a different institution. The more steps it takes to transfer money, the less you can attack your future. Personally, I keep all but one of my fiduciary investment portfolios, separate from my cash flow bank, Citibank. I have my rollover IRA through Citibank, but I can’t withdraw the money without penalty, so it doesn’t matter.
3. Use underperforming investments. Private equity, equity, and home equity deals lock in your money for 7-10 years. You can’t sell or dip into them spiritually. Compulsive idiosyncrasy is a feature, not a bug. Capital calls allow you to have a limited dollar amount over a period of 3-5 years, and invest for up to a decade. The longer you can stay invested, the more often, the better.
Every dollar means the future should stay as far away from your cash flow account as possible. In this way, money can accumulate without interruption for a long time.
The middle ground: placing a slice of the benefits
If you it’s right Link the two worlds because of cash flow problems, do it on purpose.
You can assign it 5-10% annual investment returns with the inevitable surprises of life.
Example:
Portfolio: $1,000,000
Benefit: $150,000 per year
Distribution of Surprise Expenses: $7,500 – $15,000 (5% – 10% of profits)
You still keep $135,000 – $142,500 in long-term benefits and avoid getting hit with every broken item or medical bill.
If you don’t end up using the whole “surprise” bag? BEWARE, of course.
It’s hard to get away from the keeper
For over 25 years, I have kept cash flow and investments separate. It has worked wonders for wealth building. So though think In terms of selling risk assets paying for annoying repairs sounds like a sacrilege.
Selling assets before maturity to pay off debts and buy shares was already difficult enough. Selling stocks that are likely to go up 3-5x in five years to pay for surprise costs feels bad.
Imagine selling $25,000 of a future winner just to pay off the car loan that just pissed you off. Then imagine that you realize that you missed out on another $ 100,000 in mirrors because of it. This is a real possibility when investing internally Private AI companies Today.
Then again, these tech stocks can be as easy as noseve. And when they do, you can actually feel it released That you take another benefit off the table to cover necessary living expenses while you have the opportunity. But given stocks go up ~70% of the time in any given year, your optimal cost of not staying invested will continue to grow.
Fire is difficult for money flow
If you are a firefighter, you no longer have the comfort of continuous payments. Sure, you might have the angles of lide hard, but the fixed working capital is gone. If you have given the gift of fire to your spouse or partner, then you have no one to rely on.
After buying a new house a few years ago, my cash flow took a big hit. This was a wound independent of desire, which is the cause of all suffering. I’ve been grinding my way back with solid progress. However, I’m still a year out, thinking that the stock and real estate markets work together.
If you want hear Like negative millionaires, try to live with razor-thin or negative cash flow. It doesn’t matter if your net is right. Tight cash flow keeps everything under pressure.
If you want hear As a rich party, you need two things:
- After-tax cash flow that covers well at least 120% of your monthly expenses, too
- A just the right amount 12 months of living expenses you can touch without breaking a sweat.
That’s the difference between staying rich and simply having a high net worth on paper.
Give yourself some grace after 20 years of discipline
If you are in the first 20 years of your journey to financial freedom, keep your cash flow and investments strictly diversified. Let your winners be combined.
But if you’re headed for decades, it’s okay to occasionally tap your small, defined slice of your investment gains on the smooth surfaces of life. After all, the whole point is to keep and invest for such a long time -I Worrying about money, rather than feeling financially hopeless when something goes wrong.
For most people, the right strategy for building wealth is simple: use current cash flow. Use the benefits of investing in the future. And don’t let someone ruin someone else’s vibe.
A year ago, I would have to accept that my money flow is not just like that. With costs rising with inflation and income stagnating, the only realistic way to manage surprise expenses and still take care of my family is to tap more and more into the benefits of investing. And frankly, that’s how it’s supposed to work once you’ve retired from the day job.
It’s just hard to refresh your mind after the last time and invest in the future. But I’m slowly growing into it.
Readers, do you differentiate how you use cash flow versus investment returns? Are you worried that spending money on a variety of expenses can reduce your financial discipline in the long run? If you’re planning a fire, are you ready for the uncomfortable reality of experiencing cash flow more often than you’d like? And when the time comes, do you think you’ll be able to sell risk assets to fund your lifestyle instead of retirement?
Stay on top of your finances like a hawk
One tool I’ve depended on since quitting my day job in 2012 NOKERAWIAL Free Financial Dashboard. It is always the most important part of my process for tracking value, financial performance, and cash flow.
My favorite feature is the Portfolio Cande Analyzer. Over the years it has shown that I pay about $1,200 a year in hidden investment fees – Money now compounded – mine the future instead of someone else.
If you haven’t reviewed your investments in the last 6 to 6 months, now is the time. You can run a DIY test or get a A Consensus Positive Financial Review. Either way, you’re likely to uncover useful insights about your allocations, risk exposure, and investment habits that can lead to long-term results.
Always cooperate. A little work today can create greater financial freedom tomorrow.
This statement is provided to you by Financial Samurai (“Empower”), who has entered into a written referral agreement with Empower Advisory Group, LLC (“Eag”). Click here to learn more.
