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7 Reasons to Use Create Cash Flow With the Stock Market

Here at Rich Dad, we focus on understand the difference between cash flow and capital gains. Why?

play cashflow now

When we think of retirement, most people imagine the day when they no longer need to go to that job anymore. It usually occurs somewhere around the age of 65. By that time, hopefully enough money has been saved to carry them through the retirement years. For many people, retirement may never come. They were unable to acquire enough money to cover their expenses for their remaining days. And even if they did, soaring inflation could make their savings too small.

The beauty of using cash flow to retire is that it grows with inflation. It also does not require a big nest egg. Instead, it requires assets that produce regular income. So instead of saving millions of dollars in hopes that it is enough, one would create or buy assets that create enough income to cover all their monthly expenses.

When we talk of cash flow, most people think of rent. If your monthly expenses were $5,000 you would need enough rental apartments to generate $5,000 a month. Doesn’t that sound easier and faster than building up a huge nest egg?

When people consider investing in the stock market, they typically think of long-term retirement accounts or other buy-and-hold scenarios. Rarely do they think of the stock market as a source of ongoing cash flow. Yet that’s exactly what it can do for an educated investor.

Here are 7 reasons to use the stock market to create your cash flow

Reason #1 – You can start small. Perhaps the most attractive aspect of stock market investing is that it allows anyone to start small and scale up when you’re ready. Plus, you can get up and running in a short period of time.

Starting a business or becoming a real estate investor are also great ways to help you escape the Rat Race. But they usually require a large amount of money to get started. And they also require you to invest a big chunk of time before they begin paying you back. With stocks, you have very little overhead and can start with very little money. Then you can scale it up as you grow.

Reason #2 – Flexible.

When you invest in stocks, however, you can still get started while working a regular job and learning to invest by practicing in your spare time, because I’m NOT talking about day trading or those other risky types of stock investing that force you to be glued to your computer screen. My style of stock investing allows someone to get up early and put in a bit of time before they head out to work. Others prefer doing it after they get home in the evening. Since you don’t have to interact with people as you do with a business or real estate, it’s easy to fit it to your own schedule.

Reason #3 – No people skills required. With other types of business and investing, some people get nervous because they don’t have the sales skills necessary to succeed. You don’t need that as a stock market investor. Anyone with average intelligence and a desire to learn can gain the right skills and strategies used by successful investors.

Reason #4 – Liquidity. The liquidity of the stock market means that there are always buyers and sellers ready to act. You only need to learn how to set up your investments to benefit no matter if the market moves up, down, or sideways like top investors you hear about in the news all the time.

Reason #5 – Leverage. To gain leverage in business or real estate, an investor needs to take on debt. This isn’t a bad thing, but it can sometimes limit your ability to play in those arenas. In the stock market, you can have tremendous leverage through the use of option contracts. These types of option contracts allow you to control large amounts of stock positions for pennies on the dollar. It can be a huge advantage for the educated investor who knows how to safely use options for steady cash flow.

Reason #6 – Agility. If the real estate market plunges or the economy goes into recession, there is instantly a lack of buyers and your cash flow can dry up instantly. With stocks, however, there is always opportunity – no matter if the market plunges like it has recently, or if it spikes higher, or even goes in a boring sideways direction. That’s what I mean by agility: the ability to profit in any situation you face.

Reason #7 – Free practice. One of my favorite aspects of stock investing is that you can learn how to do it without risking a single penny in a bad trade. Virtually all brokerage firms offer anyone a free account to sign up and learn to trade. It works just as if you had real money in your account — but it’s basically ‘pretend’ money. This is an ideal way to practice the strategies and skills you learn through a proper training program. No other type of investment I know of gives you this type of sandbox to play in and hone your skills.

How to cash flow stocks

Here’s what a typical investing move looks like for me on an average day. It’s a basic strategy called a covered call. Let’s say I find a stock that I want to buy at $100, and I’m willing to sell it when it reaches $105. So I decide to go for it and I purchase the stock.

That’s where an amateur investor would be finished with the investment. Just buy it at $100 and hope the price goes up.

For us, however, we’re just getting started. With the stock in my account, the next thing I do is sell a one-month option to another investor that allows her to buy the stock at $105, even if the stock jumps much higher than that. For this example, let’s say that the going price for this option is $5. So I sell the option for $5 and pocket that money — it’s all mine. And during that month, she can exercise the option at any time to buy the stock at $105. If she doesn’t then I keep the stock. And I always keep the $5 she paid for that option.

At this point, one of three things will happen:

  1. The price of the stock could go down – If this happens, I will continue to sell options every month to collect ‘rent’ on my stock. Think of it like a house that you rent out. It doesn’t matter how much the house is worth, there will always be people willing to rent it.

  2. The price of the stock could go up – If it does, then I will sell the stock at a profit.

  3. The price of the stock could stay about the same – Similar to the price going down, I can continue selling options to collect rent.

That’s a very simple approach that I can teach new investors how to do it properly in very little time. And with a little practice, my students use this strategy for safe and steady gains.

The goal

In Rich Dad philosophy the goal is simple: get enough cash flow to cover your expenses. Once that is achieved you are financially free.

While some people use real estate and others use business to achieve this goal, I hope I have shown you that you can also achieve that goal through the stock market.

If you would like to know more Click here for a FREE training I offer all Rich Dad students.

Original publish date: May 18, 2022

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