Introduction

Creating positive cash flow from your assets is a powerful tool to help you achieve financial freedom. However, many misconceptions exist about how to do it and why it’s important. To help clear up some of those myths, we’ve put together this 5 step planning guide for creating positive cash flow from your assets.

Step 1: Identify your assets

Assets are things you own but don’t necessarily have to be money. Assets can be tangible, like your house or car, or intangible, like a patent or trademark.

They may even be owned by another company and not by you directly. For example, if you’re in business with someone else and they own the inventory while you provide services to sell it and get paid for doing so – that would be considered their asset.

A more common example is when someone buys stock in a company. The stock might go up or down in value over time; if it goes up, then their ownership increases as well!

Step 2: Understand your time frame for utilizing these assets

Next, consider your time frame for utilizing your accumulated assets. For example, if you plan to tap your home equity over the next five years, this is an excellent asset to include. If it’s not something you’re willing and able to use within five years, then it may not be worth having in this financial plan.

The same goes for other more liquid assets—such as stocks or bonds or those that can be easily accessed with little efforts, such as checking accounts. These assets might be helpful if they help meet short-term goals like paying off credit card debt or funding an immediate expense such as buying a new car or replacing appliances before they break down unexpectedly.

However, most experts suggest waiting until your pre-decided term before utilizing these short-term savings since they can reduce your long-range security level by reducing what’s available, should unforeseen challenges arise in later years.

Step 3: Consider asset risk and return potential, as well as your risk tolerance and investment goals

As you determine how much to invest in each asset class and how much risk to take on, keep in mind your investment goals and lifetime income needs.

Your investment goal should be to create enough income to allow you to meet or exceed your monthly expenses and all other financial obligations, including estate planning, protecting the wealth you have built, and avoiding creditor claims.

The following are some questions to consider when determining the right amount of risk for your situation:

• What is the probability of achieving my investment goal?
• Do I want more or less risk than this?
• How long do I need my investments to last?
• Can I tolerate losses if they occur sooner than later in life? If so, a higher allocation may make sense; if not, a lower allocation is better suited for me.
• Will my investments be valuable after death, or can I only pass them on via gifting/estate plan (if applicable) so there is no need for heirs protection from creditors claims, etc.

Step 4: Protect the wealth you have by making sure you have good insurance coverage, estate plan, and protections in place

Hopefully, you’ve taken steps to protect your assets from lawsuits, creditors, and taxes. But there are still other areas you should consider when trying to safeguard your wealth.

You need insurance coverage for things that could go wrong in life; trust me, more often than not, something does! This includes health insurance, life insurance, and disability coverage along with a good umbrella policy.

Life insurance is essential because it will help replace the value of what you worked so hard for if something were to happen to you unexpectedly. For example, consider a family member that dies without having met their savings goals, or miscalculated their savings needs, or didn’t have any assets besides their home or car, which they use as collateral.

Another thing many don’t consider is estate planning—what would happen if they were no longer around one day? Are their assets presently creating, or can be made to create, cashflow sufficient to cover day to day and emergency expenses? 

Estate planning determines a family’s control over the ownership or distribution of assets, and any associated cashflow, after someone dies. It also helps avoid probate, which can be very time-consuming and create costly lawyer fees. Estate planning can also protect against unnecessary legal costs due to divorce proceedings. Each spouse can keep their separate property while still keeping some shared assets together through various methods such as joint accounts or trusts set up before marriage.

Step 5: Plan for a tax-efficient withdrawal of funds from the different types of accounts that make up your total net worth

The last and perhaps most important step in the process is to plan for a tax-efficient withdrawal of funds from the different types of accounts that make up your total net worth. This can be done by using a spreadsheet or some other financial tool to help you consider all of the money that has been saved over time, how much it will cost when it comes time to spend it, and what type of tax treatment this money will receive.

Some common mistakes people make when planning their finances include not taking into account taxes on distributions from retirement accounts such as IRAs or 401ks or the inflationary effects over the timeframe of the anticipated distributions.

Create a financial plan to ensure positive, long-lasting cash flow

Creating a financial plan to ensure positive cash flow is a part of your financial freedom goal, and it is something that you must do. It’s all about making the most of your money and assets so that you’re prepared for any situation.

The first goal of any financial plan should be to ensure that you don’t run out of money – EVER!!! This can be achieved by making smart investments, minimizing taxes, and ensuring that your assets are protected from creditors.

If you’re looking for expert analysis of your present finances, productive counsel to create or revise plans to accomplish your financial goals, and candid assessments along the way to your financial success, Bernd Financial Group can help. Our experts will meet with you to discuss your goals and objectives. Then we’ll walk you through how we can help you achieve those goals by providing unbiased advice and tailored recommendations for your needs. Schedule your free initial consultation appointment today.