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Of These 4 Financial Paths, You Can Only Choose One. Does Yours Lead to Financial Freedom?

Scott Trench
7 min read
Of These 4 Financial Paths, You Can Only Choose One. Does Yours Lead to Financial Freedom?

If I could sum up why I invest in real estate in one word, it would be this:


I believe that investing in real estate will allow me to accumulate net worth at a more rapid and predictable rate than any other type of investing over the next decade. I also believe that this net worth will allow me to pursue my passions at the pace at which I desire.

While many folks will point out that wealth does not equate to happiness, I hear very few people arguing with the logic that increased cash flow — especially passive cash flow — in one’s life increases options.

In this article, I want to delve into the “categories” that describe the financial situations of most people. I then want to explore the available options, or freedom, that those types of people have in designing their lives over the long term. As I think that it’s important to help others achieve their goals, I’ve also included a tidbit in each category that describes one or two effective ways to help these people improve their financial positions and free up their time to pursue their passions.

Category 1: Cash Flow Negative

Level of Freedom: Lowest

Long term, the consequence of a cash flow negative life is perhaps the most severe imaginable; in most cases the cash flow negative individual will lose almost all control over how they spend their time.

A cash flow negative life is one in which an individual or family spends more than they earn, and this pattern is repeated consistently over the long term. The vast majority of folks who are cash flow negative have a net worth very close to zero. In some cases, cash flow negative lives can accumulate substantially negative net worth, but creditors learn quickly, and future access to financing becomes nearly impossible.

Related: Is Financial Failure Due to Lack of Motivation? Why Money Issues Run Rampant

Cash flow negative lives have a bleak outlook. At the extreme, these folks may be homeless, may have problems with substance abuse, and may suffer from other disadvantages that render them incapable of remaining employed over any significant stretch of time. Sadly, these individuals are often in abusive situations because a significant other or caretaker has total financial power over the relationship.

In more mild cash flow negative situations, there is the simple misery of constant and unending financial pressure. Debtors, upcoming expenses like rent, groceries, and insurance, and a total lack of discretionary income result in a very tough and vicious cycle.

It can be very hard for folks in this predicament to improve their lot in life. While cutting back on spending is a must, a severely cash flow negative life will ultimately result in a total lack of assets. Folks with this condition can expect a long, hard-fought battle to get back into steady, full-time employment, and can expect to pay cash upfront for all expenses in the short to medium term future. The good news is that folks can see a dramatic improvement in their lives with just a few months of concentrated effort.

Personally, I try to work with these people as a volunteer, and I’d encourage you to do the same. Increasing one’s financial wherewithal and giving them more power over their own lives is the best gift I can think to give.

Category 2: Cash Flow Neutral

Level of Freedom: Modest

Long term, a cash flow neutral life is one that is reliant on either a paycheck or in the case of the self-employed, one or two large clients. Large life decisions are heavily dependent on a boss or are based on a career in a very narrow field.

It seems that most people today are in this position and will be for the duration of their lives. A cash flow neutral life may be one that is increasing in net worth, but that accumulation is usually an accident — the result of some “default” settings accepted as normal in American life. Mortgage payments and the resulting increase in home equity, automated 401(k) contributions, and perhaps a handful of depreciating assets like a couple of vehicles are the only contributors to net worth. All, or materially all, other dollars that enter the individual’s life are spent accumulating luxuries of no lasting value.

While the definition of cash flow neutral is open to interpretation, I choose to lump into the “cash flow neutral” category all lives that routinely save less than 10% of their total take home pay. Imperceptible positive cash flow and its tiny impact on financial decision making power is not a material improvement over no savings in terms of decision making power, at least not in the next few decades.

The cash flow neutral individual will typically work long hours over a career lasting the better part of a lifetime, perhaps on the order of 40 years or so. Cash flow neutral folks are often uneasy about their family’s financial security and are thus uncomfortable thinking about or talking about money. They are also uncomfortable with risks because anything that could potentially result in the loss of a job, major client, or career could result in a loss of cash flow, rendering them immediately cash flow negative. They content themselves with tolerable weekends and evenings that they spend at their discretion, leading to eventual acceptance of their stagnant financial position.

Most often, folks with cash flow neutral lives believe that they are doing the right things with their money. They see themselves as on track with their superiors at work or neighbors down the block. It can be hard to help these types of people out financially.

Personally, I find that getting a cash flow neutral person to repeat the following phrase tends to be an effective means of lighting a fire under their belly:

“The best possible outcome in my life, should I continue with my current career and savings rate, is that I end up in that guy’s office over there, doing that job, and doing it all day long every day of the week.”

If the cash flow neutral person is happy or enthusiastic about that phrase, then no further action is necessary. Often, however, after just one repetition, it becomes relatively easy to encourage that person to begin taking the simple steps towards living in a more fiscally responsible manner.

Category 3: Cash Flow Positive

Level of Freedom: High

These are the folks who live well below their means and accumulate assets at a high rate relative to their earned income. These folks are able to work jobs of their choosing, are able to make large life decisions with thought given to their overall well-being first, and have sufficient leeway in their lives to take risks with their careers and passions, should opportunity come a-knocking.

The difference between a cash flow neutral person and a cash flow positive life can be hard to spot. The cash flow positive individual might work the same job, wear the same clothes, and do the same things for fun, but there will be subtle differences. You might not see cash flow positive folks with fancy new cars, you might not see them eating out for lunch every day, and you might see them living in an apartment that’s not quite as lavish as their peers. Over time, however, these folks will be starting businesses, acquiring property, making connections, or will otherwise be presented with options that cash flow neutral folks are never exposed to.

Over time, cash flow positive lives result in ever-decreasing dependence on others and lower tolerance for boring/ineffective work. They desire and seek out rewarding and engaging challenges in life.

Assisting these folks is fun and engaging — they actively want to improve their own lives and often seek the counsel of others. The best way to assist them in improving their financial positions is to point them towards education, resources, and opportunities that will allow them to best deploy their hard earned savings for a good investment return. This will help them expand on the virtuous cycle that is earn, save, and invest, and continue to increase their life’s freedoms.

Category 4: Financially Independent

Level of Freedom: Highest

Financial independence is a pretty common goal on BiggerPockets. It is achieved when cash flow that requires no work (or minimal active work) safely and consistently surpasses total lifestyle expenses.

It seems like a lot of folks fantasize that financially independent individuals lead a life of leisure. They’ll envision a nice beach, frequent traveling, massages, and other luxuries. While I’m sure that some folks do treat themselves to these types of lavish lifestyles, as a practical matter, the financially independent folks that I know are some of the hardest workers around.

The reason that these people work so hard is because they no longer need to work for money. They work to solve a problem they are passionate about, master a hobby that they enjoy, or to build an empire that will last for years. Because they have total control over how they spend their time, they only participate in projects that are truly interesting and engaging to them. In fact, because of their level of dedication, it can sometimes be hard to spot financially independent folks in the crowd.

Related: A Slow, Boring, Incredibly Awesome Strategy for Building Wealth Through Passive Real Estate Investing

The best way to engage with and help these individuals out is to assist them in focusing on their passions. They are often business owners, chairmen or chairwomen of large nonprofit organizations, or simply have a hobby that they pursue relentlessly. Seek to find a problem related to their area of interest that you can solve for them. They can be very powerful and well-connected folks, and finding the answers to their specific problems can be highly rewarding to you over the long term.


I think that it is sad that most people seem to be stuck in the cash flow neutral mindset, and that this is the hardest one to break with. It’s my belief that this is the type of person who can commonly be found on BiggerPockets, lurking, reading and educating themselves, but always just one step away from action. They are so close, but not quite ready to rock the boat and take control of their money and thus their daily life.

I’d hope that by showing you the freedom that comes with creating positive cash flow in your life, you’ll be inspired to take the next step towards creating that freedom in your own life — whether it’s through real estate, a side business, or some other investment.

I’d encourage you to repeat this phrase to yourself and see if you are ready to take action:

“The best possible outcome in my life, should my financial position remain unchanged, is that I end up in that guy’s office over there, doing that job, and doing it all day long every day of the week.”

  • Is your financial mindset holding you back from pursuing your passions?
  • What steps are you taking to further your journey towards financial independence?
  • What will you do with that freedom once you achieve it?

Leave your thoughts below, and let’s have a conversation!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.