For me, the motivator is travel. While the thought of sitting on my arse all day and do nothing but play WOW (World of Warcraft) and eat pizza till I can no longer use my fingers from the inevitable osteoporosis that would result sounds tempting, I want to go and see the world, meet interesting people and fulfil my life long ambition of buying McDonald's from every country in the world that has them.
So how will this be possible? No asset class is bulletproof. None. Zilch. Period. BUT, some come very close. Shares are risky, real estate can be a very long road, art is a bit of a gamble and if you are going to buy trees, sheep, cattle or any other weird asset class, you may as well throw your money into a piranha infested pool. They would probably eat it. ANYWAY, lets look at these "almost bulletproof" sources, online savers and term deposits with the major banks.
I'm going to assume you are not a greedy person, because if you are, building cash flow is going to be difficult using this process. If you are inpatient, perhaps this will not sound very tempting either.
Online savers offer "reasonable" interest rates for your cash. Unless the bank closes, your money is safe and access is soooo easy. Currently, my bank is giving me 2.75%, but that is quite low and is the result of our (Australia's) dropping interest rates of recent. I was receiving 6% a few months ago before the slippery slide got a work out. I know that some other banks at the moment are offering much better rates then mine, but I get fee free banking with my mortgage, so I'm staying put. So what sort of cash flow does this equate to?
For a modest $10,000 balance, you get the equivalent of 76.2c/day...not bad for just having some money in the bank.
For something more serious like $150,000, that becomes $11.45/day, which could pay for your food bill, unless you like McDonalds, or like me, KFC.
At $1.7million, this equate to $128.08/day, or roughly $46,000 per year. This could be the start of being financially independent.
If I look at the good times when online savers were around 6%, this becomes $102,000/year. Definitely enough for me....I'm not greedy :)
Remember, this money is "guaranteed".
From my point of view, the easy access makes this a bit more attractive over term deposits. Also, the rates are variable....
Term deposits as far as I'm concerned are becoming less fashionable with the introduction of the above, but still, better short term value.
Term deposits tend to offer higher rates than online savers, but they should as the product is not as user friendly. From 1 month to three years, term deposits currently range between 3.5% to 5% but this changes day to day, depending on which side of the bed the bank woke up on that particular morning.
The penalty for getting this higher rate is that you are virtually cut off from using the money, until you receive your payouts, which could be monthly, quarterly, or annually. Not too bad of a compromise, but that's how it is and you can not touch your money for the entire period, or they WILL charge you. Term deposit rates are also "locked in", meaning they won't change throughout the period, so, if throughout a three year term, the bank starts offering higher rates in the second year, tough bickies, you are stuck with the initial rate. MMMWWHAAAA (evil laugh), I can hear the bank already.
Term deposits are also "guaranteed", so once again, a very stable cash flow producing asset with very low risk.
As I have said this before in another post, these should always be part of your overall strategy, don't put all your eggs in the one basket. But do put eggs in your basket. But not all in the one, but different baskets, and different eggs. OH, you know what I mean. You have to be in it to win it. Well that's not entirely what I was trying to say, OK I stop now.
Look forward to the next episode, when I share the true secret of making cash flow - stealing!!!
(You know I'm kidding...don't you?) Yeah you do...