The 95% Way or the 5% way – Skoda or Ferrari?

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Why Read (<850 words)

Finance can be a very complicated and disconcerting place, like France…but it doesn’t have to be. Understanding your most basic and important financial equation, your personal cash flow, is very easy using simple cash flow arrows. Knowing the cashflow arrows and knowing that they need to be balanced is easy. Going about balancing them in a different way to 95% of the populations requires more leg work…but the payoff is huge. If you want to learn how to go after the big prize then read on.

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Cash flow Arrows

Financially speaking, there is a vast difference between the amounts of money that people earn. Some make more than others and some make substantially more than others. However, everyone shares the same cash flow balancing act. Everyone has cash coming in, (Green Arrow) and cash flowing out (Red Arrow). Ideally the cash coming in arrow wants to be larger than the cash going out arrow and not the other way round to ensure a level of financial security and freedom from the pay check. All fairly simple stuff so far.

Everyone has the same simple cash flow equation but there are two ways of balancing it. 95% of people balance it one way and only 5% of people balance it another way. You want to be in the 5% category and it is easier than you think.

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The 95% Way - Sell Your Time And Experience

For most people the only way to increase the size of the green arrow is to sell more and more time or gain more and more experience (which also takes time). Selling more time is an obvious way to earn more and increasing your experience means that your time is worth more per hour. This in itself is very obviously a ultimately flawed solution as there is only a finite amount of time and experience that one person can sell and thus there is a finite size to your green arrow. The red arrow on the other hand, your outgoings, is not so finite and can very easily get very large, very quickly.

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The 5% Way - Package Your Time And Experience And Sell It Over And Over And Over Again

How did Bill Gates manage to become the richest person in the world and a multi billionaire? According to the 95% way this just isn’t possible. Bill Gates experience, as great as it is, isn’t worth billions and he has no more hours available to him to sell than any other individual. What Bill Gates did, and what brought him huge wealth, was to package his experience in the form of software and ultimately his company Microsoft. He could now sell this package again and again and again. This is called a scalable model and in theory is infinite within the huge global market.

Only a small amount of people live this way, but in this current world it is the model that everyone should be aiming for. Possibly not at the scale of Microsoft but then it doesn’t have to be.

Repackaging and selling your experience in a product form means that, after the initial investment, you are not having to trade your time for cash.

Most people who make their money this way actually pay for other peoples time to keep it running and the money coming in, giving them freedom from the pay check. The more they sell, the more people they hire and the more money they make but without trading their key resource, their time. Cash generating assets like these make the owner money whether he is awake/asleep/on holidays or catching up on the latest episode of lost.

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Leverage Isn’t Always Good

The trick to owning cash generating assets and having a stress free life is to ensure that they are not leveraged as much as possible.

Leveraged cash generating assets are those obtained by taking out loans and going into debt and are risky when not properly managed and understood. If the cash stops coming in you could be left with huge debts. Ideally your cash generating assets should be non-leveraged so that if they do dry up all that stops is the money coming in and if you have multiple streams of income, this should not present a problem. Non leveraged cash generating assets are not as difficult to set up as some might think and there are some great books out there that go into it in much more detail than I will. A good start is to read the 4 Hour Workweek by Tim Ferris.

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To Sum Up

How you balance your Cashflow arrows will determine how wealthy you will become. No one becomes wealthy over night, it is a long term investment in knowledge and understanding. However you have a choice, follow the herd and do what 95% of people do to balance their arrows or commit to learning to create non leveraged cash generating arrows and become wealthy with the other 5%.

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Help Me Out

I give all this advice out for free and so if you like what I write and it helped you, please help me out by letting others know. On this site, it has been scientifically proven that by doing so you will become instantly twice as attractive to the opposite sex. Can’t argue with science.