Which financial metric do you hear about in the news more often: net worth, or cash flow? When it comes to mainstream news, net worth is easily the more popular topic. From entertainers to entrepreneurs to athletes, the success of the richest among us is usually measured in terms of net worth. But when it comes to calculating the health of your own financial standing, focusing on net worth and ignoring cash flow would be misleading.

What is net worth?

The exact definition of net worth is sometimes debated, since it can be measured in a few different ways. But at the basic level, net worth is the amount of cash you’d have in hand if you liquidated all your assets. In other words, it’s the worth of your total assets minus your total liabilities.

For example, if you have $1 million total in real estate investments, retirement account investments, and savings, but you have $900,000 in medical, tax, and credit card debt, your net worth would only be $100,000.

What is cash flow?

Cash flow, on the other hand, is the amount of money you have coming in minus the amount that’s going out. To put it another way, cash flow is the extra money you have left over after you’ve covered your expenses.

For instance, let’s say you’re making $8,000 in income every month. Your mortgage is $3,000, your car payment is $1,000, and your other bills add up to $2,000. You’d have $2,000 in cash left over each month after all your bills have been paid. That’s your cash flow.

So which is more beneficial: High net worth or high cash flow?

Let’s look at one more example to figure out the answer to this question. Imagine two individuals who are heirs to their family fortunes. The family of Person A owns a beautiful, historic, twenty-room castle and the surrounding estate. The family of Person B owns a successful candy brand and its factory. Which person would you rather be, in terms of the financials?

If you want to be in the best financial position, you’d choose Person B’s situation. Even though Person A’s castle estate is likely worth millions, they’ll only see that money if they sell it. If they want to keep ownership of the property, they’ll have a high net worth but zero cash flow—meaning no money to spend!

But Person B makes regular income off of the candy that the factory makes and sells. They’d also receive a big check if they sold the factory and the brand. That means Person B has a high cash flow and a high net worth. They have money to spend now, every day, and they’ll come into a large chunk of money too if they ever choose to liquidate their key asset, the factory.

So from this perspective, cash flow is more important in determining the health of your financial standing.

How can you increase your cash flow?

There are really only two ways to increase your cash flow:

1. Spend less money
2. Make more money

If you make $10,000 a month but your expenses are $9,000, you only have $1,000 in monthly cash flow. But if you make $5,000 a month and keep your expenses down at only $2,000, you’ll have $3,000 in monthly cash flow. That means living within your means and keeping expenses well under your income when possible are key. Remember: Even if you massively increase your income, your cash flow will only increase too if you make sure not to spend every dime of this new cash stream!

So of course, making more money is the other way to help boost your cash flow (as long as your expenses don’t increase accordingly). One of the best ways to do this while still having enough free time to truly enjoy life is by generating a passive income. There’s also lots of opportunity in the field of high-return investing, especially real estate investments. If you’re interested in these, read on.

Ready to learn more?

The best way for you to learn more about investments and real estate syndications, as well as our current, previous, and upcoming deals, is to join the Sterling Rhino Capital Investor Club.

Through the Sterling Rhino Capital Investor Club, you’ll get first looks at all the deals we offer. We’ll work with you to figure out your investing goals and to help you find the best deals to meet those goals. We’ll then walk with you every step of the way as you invest in those deals.

So if you’re ready to be done with the headaches of being a landlord, sign up for the Sterling Rhino Capital Investor Club, and get started on your path toward becoming a passive real estate investor.