4 Compelling Reasons Why You Should Be Investing For Income

Before you invest any money, you need to be clear about your investment objectives.

Whether you are simply looking to park excess money, or build a financial safety net, it pays to understand what you want to achieve right from the onset.

When it comes to investing money, a helpful analogy I like to use is that of a dairy cow. You can buy a dairy cow, fatten it and then sell it for a higher price than you actually bought it, hence making a profit in the process.

Alternatively, you can buy the dairy cow, feed it, milk it more than once, and sell the milk everyday without any intention of ever selling the cow.

The first scenario can be compared to investing for appreciation, while the second scenario is akin to investing for income or cash flow.

In this article, we will cover four compelling reasons why you should be investing for income or cash flow, especially if you are just getting started.

1.  You do not have to sell the investment to realize your income

When you make an investment that does not generate any cash flow, you may find yourself having to get rid of it in order to take care of any sudden or unexpected financial need.

In the event of a forced sale, you may not be able to realize a profit. An investment that returns a regular income may therefore be more helpful when it comes to managing your cash flow needs.

2.  Investment income can replace your paycheck

Having a good understanding of return on investment can help you devise means of replacing your paycheck with cash flow from your investments, which in turn can lead to financial freedom.

Once you target investments that return a specified amount of income on a regular basis, you can structure your investment income to replace your paycheck, and you will only work for money because you want to, and not because you have to.

3. Investing for income helps you avoid speculation

Most amateur investors believe there is a thin line between investing and gambling.

When you invest with the belief that you will definitely sell your investment at a profit without taking into account the fact that you may lose all your money, you may be setting yourself up for frustration.

You have to understand that the right time to sell will be determined by the market, and not by your financial needs.

4.  Knowing your income targets will help you select the right investments

Once you know how much money you want to earn from your investments, you will be able to make targeted and informed decisions as to whether or not a specific investment will yield the financial results you are looking for.

If your objective is to earn more money to enjoy the good things in life for you and your family, linking your income targets to your investments will help you eliminate the specific investments that may not be appropriate for your financial needs.

When investing for income, you will always have the advantage of keeping the goose that lays the golden eggs.

That is not to say that you should not invest for a capital gain or appreciation.

Professional investors usually strike a balance between both types of investments in a deliberate fashion. It all comes down to your financial goals and how you intend to attain them.