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With the Coronavirus outbreaks surging (and our salaries at risk), we all need to learn about how to replace some or all of our income with cash flow from investing activities. Adding income from passive investments can help you to create multiple flows of income so that you’re not reliant on one company or client.
Without a doubt, diversified streams of income are key to weathering any economic crisis.
Cash Flow from Investing Activities
Personally, I like my money to be invested such that my assets produce cash flow to fund my lifestyle, regardless of whether they go up or down in value. This approach creates financial freedom, regardless of what is happening with the economy at large.
Examples of cash flow producing assets include:
- Rental Real Estate – With income-producing rental real estate, you receive monthly payments from your tenants.
- Real Estate Funds – With real estate investment funds, you receive monthly payments for investing in a fund that owns a portfolio of properties in which you are a partial owner.
- Corporate or Municipal Bonds – When you buy a bond, you lend money to a company or government and get paid a fixed rate of interest in return.
- Dividend Paying Stocks – Certain types of stocks pay dividends to their shareholders.
- Dividend Paying ETFs – Exchange-traded funds (ETFs) are a type of fund that owns assets with its ownership broken into shares that can be bought and sold on a stock exchange. Some ETFs pay quarterly dividends to their investors.
- Dividend Paying Mutual Funds – Mutual funds are actively managed funds that invest into various asset types. Some of these funds pay quarterly dividends to their investors.
- Peer to Peer Lending – With peer-to-peer lending, you lend money to other people or businesses in exchange for interest payments.
- Staked Crypto – Staking is a way to earn a yield (rate of return) from your cryptocurrency.
While these aren’t the only forms of income-producing investments, they are some of the most popular.
Investments form an important part of future financial planning. They aim to make your money work for you by putting it to use. What’s the point of having it lying around in a bank account with a low-interest rate?
As time goes by, any money saved will start to decrease (dramatically) in real terms as inflation rises. For example, to buy what you could have gotten for $1 in the year 1900, you now have to pay approximately $30.
Meaning, your dollar today is only worth 1/30th (approximately 3%) of what it was 120 years ago.
Yikes, right?
The Goals of Investing
The goal of investing is to combat the effects of inflation, and ideally, beat the rate of inflation substantially enough to grow your wealth on an inflation-adjusted basis.
Additionally, your underlying investment should be one that won’t lose you money, no matter what direction the economy goes in.
As the great financial guru Warren Buffett says ““Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”
In my opinion, the best investments meet the following criteria:
- Have the potential to appreciate (“increase”) in value over time
- Will pay you income (either monthly or quarterly)
- Have tax benefits
I almost never buy investments unless they meet these criteria. This is why I primarily invest in long-term rental properties, commercial real estate, short-term vacation rental properties, and businesses that I own and operate.
The best way to get started with creating diversified income streams is to start small. For example, your first goal should be to collect $100 per month in passive income. Then $200 per month. Then $500 per month. And so on.
With the Coronavirus putting everyone at risk financially, owning income-producing investments is more critical than ever before, and you should be learning how to do it.
Advantages of Investing for Cash Flow
Of course, investing does carry a certain element of risk, but with proper financial education, this risk can be mitigated. We would all love to get rich overnight by recognizing the next big startup, cryptocurrency or invention.
Unfortunately, the chances of this happening are very slim.
Generating cash flow from investing activities is one of the many ways you can take control of your finances. Trust your knowledge when deciding which investments are the right ones for you to take.
If you aren’t sure, that means you need to continue to invest in your financial education. The more you know, the sounder your investment choices will be!
Do you have questions about how to produce cash flow from investing activities? Ask them in the comments below.
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