{"id":48,"date":"2011-12-14T11:59:07","date_gmt":"2011-12-14T16:59:07","guid":{"rendered":"http:\/\/www.cashflownavigator.com\/blog\/?p=48"},"modified":"2012-01-18T01:21:59","modified_gmt":"2012-01-18T06:21:59","slug":"net-worth-is-good-but-cash-flow-is-better","status":"publish","type":"post","link":"https:\/\/www.cashflownavigator.com\/blog\/2011\/12\/net-worth-is-good-but-cash-flow-is-better\/","title":{"rendered":"Net Worth is Good, but Cash Flow is Better"},"content":{"rendered":"

\"\"<\/a>You might have seen some TV ads recently where people literally carry their retirement \u201cnumber\u201d with them.\u00a0\u00a0 Each person\u2019s number varies, but it\u2019s usually in the $1-2 million range.<\/p>\n

I like these ads because they reinforce the importance of setting a measurable retirement goal.\u00a0 But merely having a \u201cnumber\u201d like the ones in these commercials isn\u2019t enough.\u00a0 Why not?\u00a0 Well, in the first place we don\u2019t know what the number represents.\u00a0 Is it net worth? Is it investable assets?<\/p>\n

Second, how does that number pay for your retirement expenses?\u00a0 In our previous article we discussed how retirement expenses can be grouped into two general categories: lump sum purchases or ongoing expenses. \u00a0Lump sum purchases include such things as a house, cars, possibly a big trip or vacation.\u00a0 Ongoing expenses are recurring living expenses \u2013 monthly utility bills, food and clothing, regular insurance payments, etc.\u00a0 Somehow your \u201cnumber\u201d has to cover both categories of expenses.\u00a0\u00a0 But how?<\/p>\n

\u00a0Some assets generate cash flow and some don\u2019t.\u00a0 That\u2019s the missing ingredient.\u00a0<\/strong><\/p>\n

Retirement \u201cnumbers\u201d usually refer to net worth, which is a measure of your wealth.\u00a0 Let\u2019s say your number is $1.5 million, and it represents your net worth at retirement.\u00a0 There are many combinations of assets and liabilities (debts) that result in a net worth of $1.5 million but to keep things simple let\u2019s assume further that you have no debts.\u00a0\u00a0 So you have $1.5 million in assets and no liabilities.\u00a0 You are a millionaire with no debts.\u00a0 Nice going!\u00a0 But we still need to make another assumption \u2013 about the composition<\/em> of your assets.<\/p>\n

Some assets generate cash flow and some don\u2019t.\u00a0\u00a0 That\u2019s the missing ingredient.\u00a0 Cash flow-generating assets can be used to pay for ongoing living expenses.\u00a0\u00a0 And if your assets generate enough of a regular income stream \u2013 enough monthly cash flow \u2013 to pay for both your ongoing expenses and your periodic lump sum purchases, then you will have become financially independent.<\/p>\n

That\u2019s really the ultimate goal, isn\u2019t it\u2026financial independence?\u00a0 Having a large net worth \u201cnumber\u201d \u2013 having wealth \u2013 is good.\u00a0 In fact, it\u2019s necessary.\u00a0 But it might not be enough to pay the bills.\u00a0 For that you need assets that generate cash flow<\/em>.\u00a0 That\u2019s even better.<\/p>\n

But why wait until retirement to acquire assets that generate cash flow?\u00a0\u00a0 Wouldn\u2019t it make sense to start accumulating them when you\u2019re younger?<\/p>\n","protected":false},"excerpt":{"rendered":"

You might have seen some TV ads recently where people literally carry their retirement<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[10,9,3,8,7],"tags":[],"class_list":["post-48","post","type-post","status-publish","format-standard","hentry","category-assets","category-cash-flow","category-financial-planning","category-net-worth","category-retirement"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/48","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/comments?post=48"}],"version-history":[{"count":13,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/48\/revisions"}],"predecessor-version":[{"id":146,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/48\/revisions\/146"}],"wp:attachment":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/media?parent=48"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/categories?post=48"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/tags?post=48"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}