Turbo-charge your cash flow by owning the right assets.
Money Girl
316 MG How to Increase Your Cash Flow (Part 2)
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In part one, we discuss the importance of eliminating or reducing negative cash flow. I gave you five tips for cutting one of the biggest expenses that typically drains cash flow, which is housing. In this episode, we'll look at the other side of the coin. I'll give you ideas about how to increase your positive cash flow. By owning assets and investments that actually create income. To achieve financial success, you need regular monthly income or cash flow. But most people don't understand all the ways you can get more of it. For instance, the average person is stuck in a linear view of money that goes something like this. Get up, go to work, earn a wage, deposit paycheck in the bank, and spend paycheck on bills. Don't get me wrong. It's wonderful to have a secure nine-to-five job, especially if you love the work. But it's also important to remember that you don't have to depend on an employer for 100% of your cash flow. It can also come from owning different kinds of assets. Problem is, if you spend your entire paycheck on bills and never have any left over to invest in assets that create additional income, well, you're missing a huge financial opportunity. This is why you should always invest at least 15% of your income. But what should you invest in to get the most cash flow? Well, I strongly recommend buying assets inside tax advantage retirement accounts. You might qualify for one of these at work, like a 401(k) or 403(b). If not, just about everyone is eligible to contribute to an individual retirement arrangement or IRA, and there are even more types of retirement accounts designed just for business owners or those who are self-employed. I did a two-part podcast series called "Six Retirement Accounts You Should Know About," listening to these episodes, which are numbers 310 and 311, will help you learn more about your retirement account options. Retirement accounts are so great because they reduce your taxes and give you an easy way to invest small amounts of money. For instance, you might invest $100 from every paycheck in a mix of securities, like stocks, bonds, and mutual funds. However, don't ever contribute any money to a retirement account that you might need to spend before retirement. You generally are not allowed to make any withdrawals from a workplace plan unless you have a documented financial hardship. You have more flexibility for taking withdrawals from an IRA, but no matter the reason for tapping a retirement account, you generally have to pay a steep 10% early withdrawal penalty. So, if you're not sure whether you'll need access to money before reaching the official retirement age of 59 and a half, invest using a taxable brokerage account instead. A huge benefit you might get from participating in a workplace retirement plan is employer matching funds. This is when your company contributes money to your retirement account on your behalf. That's called free cash flow. So be sure to participate and contribute enough to take advantage of an employer's maximum match on any workplace retirement account that you're offered. The next step is to consider what to buy inside of your retirement account or brokerage account that can give you cash flow. One option is dividend stocks. They have the advantage of potentially growing in value plus generating cash flow in the form of dividends. You could earn 2%, 3% or more from stock dividend payments compared to getting less than 1% from a savings account or CD. However, stocks are considered a risky investment. That's because prices can fluctuate wildly over just a few minutes of trading. But the idea is to own stocks that will appreciate in value over the long term, so you aren't concerned about their minute-to-minute value on the stock market. With any type of investment account, you have access to a broker or company representative who can help you understand how safe or risky an investment should be. That's how you'll know what's best for your situation. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. With policy genius, you can find insurance policies that start at just $292 a year for a million dollars of coverage. Some options offer same-day approval and avoid unnecessary medical exams. Policy genius's technology lets you compare quotes from America's top insurers in just a few clicks to find your lowest price. It's the country's leading online insurance marketplace. 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Their videos, lessons, sample problems, and learning games, too. One subscription to Ixcel gets you all subjects and all grade levels. Membership started just $9.95 a month. It's no wonder Ixcel is used in 95 of the top 100 school districts. I think the positive feedback that Ixcel gives is really crucial when it comes to learning. So make an impact on your child's learning, get Ixcel now, and money girl listeners can get an exclusive 20% off Ixcel membership when they sign up today at ixl.com/moneygirl. Visit ixl.com/moneygirl to get the most effective learning program out there at the best price. Before butt-naked underwear, going out naked was a negative grocery shopping in the nude. A big no-no. Sunday service in the buff. A disservice. And naked in the garage? Just odd. Turn naked into a net positive with butt-naked underwear and feel like wearing nothing at all anywhere. Get butt-naked at your Duluth trading store. Another way to generate cash flow is to own rental real estate. It could be a house, multifamily building, or commercial property. I've been a real estate investor in all of these property types for a long time, though some years are better than others, owning property that's completely paid for by the tenant is a great investment. The goal is to have some monthly cash flow after all expenses are paid and to see the property's value rise over the long term. But real estate is more difficult to buy than stocks or mutual funds because you need a big chunk of savings to put down. You typically need anywhere from 5-20% of the purchase price for a primary residence and at least 20% for an investment property. So a great way to start investing in real estate is to own your own home. Then you can buy a second home and turn your first property into a rental instead of selling it. If you can charge rent that's high enough to cover your mortgage payment, property taxes, insurance, maintenance, and perhaps a monthly fee to a professional property manager, you'll be in business. Here's a quick and dirty tip. Find a real estate agent or two who specialize in investment property and use them as resources to help you make the best decision. Also, talk to local property managers about typical rents and expenses to expect in a given neighborhood. These professionals will be more than happy to share their expertise and perhaps gain a new client. Besides buying investments like securities and real estate, don't forget that your most important asset is you. Think about what you can do outside of your day job to create more income. If you have a passion for something like photography, blogging, graphic design, or becoming a virtual assistant, you could develop a cash flow producing side hustle right now. Turning your talents into a business gives you a second or third source of income. That reduces the risk of relying solely on an employer. Wouldn't that be a nice financial cushion to fall back on if you lose your job or decide to make a career transition? I mentioned in part one of this series that you need to be creative to find ways to reduce negative cash flow. Well, the same is true for increasing positive cash flow. Always be looking for opportunities to expand the types of income you can create. Winning the cash flow game isn't about immediate gratification or making a quick buck. It's about creating wealth, peace of mind, and financial security for the future. This episode was co-written by me and Keith Whelan, the founder of cashflow navigator.com, an award-winning free website offering advice and tools to help maximize your cash flow. To read a transcript of this show, connect with me on Facebook or Twitter, or even sign up for the free Money Girl newsletter. You just need to visit the Money Girl page at quickanddirtytips.com. This is episode number 316 called "How to Increase Your Cash Flow Part 2." I'm glad you're listening to change. That's all for now. Courtesy of Money Girl, your guide to our richer life. At Capele University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the course room to the workplace. A different future is closer than you think. With Capella University, learn more at Capella.edu. When you need meal time inspiration, it's worth shopping king supers for thousands of appetizing ingredients that inspire countless mouth-watering meals. And no matter what tasty choice you make, you'll enjoy our everyday low prices, plus extra ways to save, like digital coupons worth over $600 each week, and up to $1 off per gallon at the pump with points, so you can get big flavors and big savings, king supers, fresh for everyone, Fuel restrictions apply.