15 Sep The different types of cash and what they mean for you
There are three different kinds of cash:
- One-Time Cash
- Temporary Cash
- Forever Cash
Which of the below three options do you think is best?
- $500 cash you received today for 10 hours of hard work you did last week
- $500 cash you received today in interest from a six-month, $50,000 private loan you gave to a real estate investor with 12 percent interest. It took you five hours to analyze the deal and complete the transaction, and now each month you just collect the $500 interest check. After six months, you get your $50,000 back and then find a new place to invest your money.
- $500 cash you received today from a rental house you bought last year. It took you five hours of work to complete the deal and rent the house, and now you receive $500 per month each month forever, doing nothing other than making a phone call to the property manager every few weeks to make sure things are going smoothly.
First, the effort and kind of work to get the $500 in each case was quite different; and, second, the frequency of getting that $500 also is different and impacts the decision. In the first case, you received what I call “One-Time Cash.” In the second case and third case, virtually no ongoing effort is required. In scenario two, you get $500 each month only for six months (and that’s what I think of as “Temporary Cash”), but then you have to start again and find not the next place to put your money. In the third case, you earn $500 cash that is recurring cash (what I like to call “Forever Cash”) every month forever, and you no longer have to do any activity to earn that money other than managing the property manager with a couple of phone calls a month. You own an asset that spits out cash every month forever.
The rich have always understood this and receive all three types of cash. They occasionally will do something for a one-time fee, but they focus heavily on the second one and—particularly—on the last one. The poor class, the middle class, and even many of the more affluent job people and unenlightened entrepreneurs only receive one of them, that One-Time Cash. Let’s look at each a little more closely. Each category is important for you to understand so that you can get to the place where you can actually break free financially!
Recognizing what type of cash you are earning and how to get the other types is an important step to financial independence.