Table of Contents
So while I’m not yet rich, I am wealthy. I now have income generated from assets each month that fully cover my monthly expenses. If I want to increase my expenses, I first must increase my cash flow to maintain this level of wealth. (Location 1108)
By using percentages of income and outbound, we can avoid lifestyle creep. Lifestyle creep is what happens when costs inflate as income goes up. Increase revenue and expenses at the same, healthy rate
All entities have revenues and expenses.
All entities—people, companies, nonprofit organizations, and governments—deal with the same basic financial realities, and always have. They have money that comes in (i.e., revenue) and money that goes out (i.e., expenses) that, when netted, make up their net income. These flows are measured in numbers that appear in income statements. If an entity brings in more than it spends, it has a profit that causes its savings to go up. If it spends more than it earns, its savings go down, or it makes up the difference by borrowing or taking money from someone else. If an entity has many more assets than liabilities (i.e., a large net worth), it can spend above its income by selling assets until the money runs out, at which point it has to slash its expenses. If it doesn’t have much more in assets than it has in liabilities and its income falls beneath the amount it needs to pay out to cover the total of its operating expenses and its debt-service expenses, it will have to cut its expenses or will default or restructure its debts. (Location 1526)
Avoid macroeconomic jargon in favor of positive/negative cash flows
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