photo credit: rbbairdUsing sound cash flow management techniques is an excellent way to get yourself out of personal debt and put you on the fast track to financial recovery. Working your way out of debt is even more important during today’s uncertain economic times, than it has ever been. Cash flow management helps you identify where your money is being generated from. For most people, this income that is coming in probably is from a job and/or significant others job. Managing your cash flow can also point out where your hard earned money is going out. Keeping detailed records of your expenses can help you identify costs that can be cut, thus increasing your cash position to use elsewhere.
Another effective cash flow management technique is often used by people who are working to build their passive income streams. Creating passive income is an excellent way to diversify your cash flow coming in, so that you don’t have to rely solely on a job to pay your bills. The question I always have is – what are you using your passive income for? Are you using it to pay your monthly bills? Or maybe you are using it to splurge on a new television or the next cool techie gadget. There are obviously no right or wrong answers to these questions. I personally am using my passive income to fund new and exciting residual income streams that will pay me again and again. I like to think of it as compounding passive income – similar to the concept of compounding interest.
Reinvesting your passive income is not a new topic by any means on PFI, as I have covered it many times. However, I believe it is so important to use sound cash flow management techniques to compound your income generation opportunities. Maybe you rely on your passive income to pay the bills – which is fine. However, reinvesting any little bit of that income you generated can help put you on the right track to financial freedom!
Here are a few cash flow management techniques that I am using to reinvest my passive income -
- eHow Earnings – I recently broke above the $25 per month barrier with my eHow passive income earnings. I can see a nice trend moving upward which should produce a nice stream of income. I had been letting my earnings build up in a savings account that earned a little interest. I am now planning to reinvest a portion of my eHow passive income into creating niche blogs. Just this month I created a niche blog on a topic that I am passionate about. The total fees involved in the setup of this new site was $12.49. I used money generated from eHow so that I wouldn’t have to pay any out of pocket money. Each month I hope to increase my investments into this new passive income opportunity.
- Dividends – I have said it many times before and will say it again but I have DRIPs setup on all of my dividend producing stocks to reinvest my earnings. This is money that I don’t count on to pay my bills or even notice each month. Having it directly reinvested takes away any temptation to use it on a frivolous purchase.
- CD Interest – This is something that my wife and I have been doing for many years. We have our emergency fund money setup in 5 different certificate of deposits that expire different times in the year. Just last year we generated a couple thousand dollars in interest from these CDs. While some may have been tempted to use that interest on a new cool toy – we simply reinvested it back into new CDs.
As time goes on and passive income streams succeed and fail, I will continue to use sound cash flow management techniques to reinvest my passive income. Maybe next month I will find a new and exciting passive income opportunity to invest in. Who knows? The key is to have a plan on what to do with that income so that you can make it work for you over and over again.
How do you reinvest your passive income?
{ 6 comments… read them below or add one }
Great post PFI,
It’s nice to be making cash, using the cash that you generate. You are just compounding your income faster this way..
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pfincome Reply:
April 6th, 2009 at 11:30 pm
@DGI – Thanks. Compounding interest is a great way to accelerate your income.
pfincome’s last blog post..Recession in America – Building Your Savings
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Ah, the biggest dilemma of passive income- what to do with it?
I basically break down my passive income into 3 categories:
1.) Taxes.
2.) Use for income (bills, specific savings accounts, fun money).
3.) Reinvest in passive income sources (normally stocks).
It’s kind of tempting to use a significant portion of my passive income for the 2nd group, but then I realize that the more I divert to the 3rd, the quicker the road to financial independence.
Blake’s last blog post..Things Not to Cut
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pfincome Reply:
April 6th, 2009 at 11:33 pm
@Blake – Agreed. I prefer to use option 3 whenever possible. Lately I have been spending some of my passive income on eBooks and materials to help accelerate my growth.
pfincome’s last blog post..Recession in America – Building Your Savings
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I’m using all passive income to pay down debt! I am slaying the debt beast baby!!! This is my #1 goal for 2009.
Brandon’s last blog post..What is a meme?
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pfincome Reply:
April 6th, 2009 at 11:33 pm
@Brandon – Sounds like a lot of people are paying down their debt with passive income earnings.
pfincome’s last blog post..Recession in America – Building Your Savings
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Blake, well said! It’s very tempting to go to group #2, but #3 will make #2 much better later on.
Thanks for the great post too, PFI!
Pat with SPI’s last blog post..How to Publish an Ebook Series – Part 1 – Hard Copy vs. Ebook
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Sounds like you and I share the same ideas about cashflow! I’m doing the same thing with reinvestment of my passive earnings – although I’m also putting it into debt paydown lately, too, as a bit of security in this economy – because we really don’t know if there’s another shoe to drop. So I’m reinvesting some into stocks (DRIPs), but also putting the rest into secure income-producing and income-saving vehicles.
MoneyEnergy’s last blog post..What’s Wrong With the US Economy
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The second and third option is very good although having CD interests would be my choice. It definitely is best to reinvest passive income to generate more passive revenues. Thanks for sharing.
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pfincome Reply:
February 22nd, 2010 at 11:22 am
@Menandro – I like CD’s as well. Unfortunately in the down economy the rates are not so good which opens up other alternatives.
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