Wealth Tip of the Day for Tuesday, October 10, 2006

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Hi this is Diane Kennedy. Today is Day 9 of the 30-day Coundown to the release of my new book, The Maui Millionaires™ that I co-wrote the book with David Finkel. The book is scheduled to be released on November 3, 2006, and from now until then I’ll be checking in every day with a Wealth Tip excerpt from the book, written either by myself or by my co-author, David Finkel.

Wealth Tip 9: Create Passive Cash Flow—Money that Flows to You without You Having to Work for It

Passive cash flow is money that comes to you without you having to actively work to generate it. In fact, I’ll put a more rigorous definition to this—passive cash flow is money you earn while working less than 10 hours per MONTH to create it.

Examples of passive cash flow are the money you earn from a CD or money market account. Or the lump sum payday you earn when you sell a property you have owned for a number of years that was being managed by an outside property management company. Or the money you earn when you sell an asset that you have owned that took minimal oversite from you personally to manage.

Still, by itself, passive cash flow isn’t enough because it often isn’t ongoing. For example, over the past ten years I’ve owned interests in well over a hundred houses. These properties were totally managed by outside joint venture partners who did the almost all of the work. Over time I sold off my interest in this portfolio of houses for a lot of money. This income was passive because it required so little of my time to create it. However, once sold, I now no longer generate any more income from those houses. I made a lot of money, but lump sums of money are not enough for financial freedom. Instead you need to invest a portion of your wealth for residual cash flow. This is the subject of tomorrow’s Wealth Tip, Wealth Tip #10.

For more on the three types of cash flow and creating passive income see The Maui Millionaires™ pp. 167-190.

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