… it is time to make a clear distinction about what income does and does not do. Income may or may not cover your expenses, and it may or may not leave anything for you to spend after your bills are paid. What it most certainly does not do is provide anyone with financial freedom. Financial freedom can result only from passive cash flow in excess of your living expenses.
It is a mistake to confuse income for cash flow. They are not at all the same thing. Let me paint you a picture. Suppose you were hired to cater a dinner for 200 people. You were told that you could eat any leftovers after all of the guests had been served. If all the guests showed up and ate more than their fair share, you’d be out of luck and going home to scrounge peanut butter and jelly sandwiches for dinner. But if less than 200 guests arrived and ate modestly, you’d have enough leftovers to take home for your entire family to enjoy. Sure beats peanut butter!
Now relate this scenario to your income. The food that you prepared as a caterer is the equivalent of the money you earn from your paycheck. As the money comes in, everyone gets served. The guests are the expenses you incur to maintain your standard of living. Some expenses eat a lot of your take home pay, some eat a modest amount. The guest of honor at the party you are hosting is the tax man. He gets the first plate of food, and he eats a lot. Then the bank that holds your mortgage and car loans, the credit card companies, utility companies, gas stations, cable and internet provider and on and on it goes. The leftovers, if you have any, are your cash flow. And that’s what you get to eat.