What is your number?

01 Jul What is your number?

The theory of building a pile of cash (also often known as “the number”) that will last for life has not worked for most people. Unless you are extremely disciplined or that mountain of money is huge, it never has and it never will work. Just ask all those people who lost their money with Enron or in a huge market crash when they were ready to hit retirement. 

The mountain of money or number theory claims that to be able to retire in style you need to reach a certain number, a certain dollar figure, or a certain size pile of cash in the bank that will last long enough. (And you don’t want to outlive that!) While that is certainly one way to look at it, it has some serious flaws. One of these flaws is that the pile can disappear quickly if it is put in the wrong place and/or at the wrong time or with the wrong person. The secret of the wealthy is Forever Cash and Forever Cash Flow!

Truly wealthy people don’t live off what their work pays; they don’t rely on a job or even their businesses. Truly wealthy people live from the ongoing (forever) cash flow that their investments provide for them. They focus on creating such investments and then keeping them, preferably forever.

Look at Warren Buffett. He doesn’t work for money anymore. He is actively giving his money away. For him, his work is his passion. As he famously said in 2008 when talking to business students from Emory and the University of Texas at Austin: “I enjoy what I do. I tap dance to work every day.”

Where does the money come from for these generationally wealthy people? It comes from cash that gets deposited in their bank accounts each month year-in, year-out— without them having to work for it.

Some of it might be invested in businesses (like Buffett does), but the point is that the wealthy people don’t have to operate these businesses to make that money. The money comes in, no matter what they do day in and day out.