I have seen two kinds of people in my last 12 yrs of experience in the personal finance domain.
One is the Cashflow committed and another is Networth committed!
Do you know which one are you!?
What is a Cashflow vs Networth committed mindset?
Let’s talk about these two kinds of mindsets.
Cashflow committed Mindset
When you buy things and repay them back, you depend too much on your future cash flow, you are a cashflow-committed person. If you have to buy a car, a vacation, a training course, an expensive mobile, or anything for that matter, you say to yourself – “Let’s take a loan and I commit my future earnings (cashflow) for this purchase”.
You basically trust and rely on the future to consume TODAY.
You don’t think twice if you can afford something or not, because everything looks within your reach because everything is sorted IN FUTURE. The future is unlimited, the future is always amazing where you will EARN with no difficulty.
If this mindset has become 2nd nature of yours or at I shall say you are almost addicted to buying things on loans, then you are a cashflow-committed person.
Networth committed Mindset
On the other hand, there is another mindset at work!
If you want to buy anything, you are committed to first building the networth required for it and prefer to pay out of your networth. Your nature is to consume when you have the money, or else you don’t want to consume things or defer them in the future.
You are a bit uncomfortable to commit for your future cash flow to the purchase, your internal design is to first acquire wealth, and then out of that wealth you want to pay for things. Even if you get a chance to take the loan easily, you deny it because, in your world, you want to be fully in control of your future cash flow.
What if there is no income in the future? What if you don’t earn enough? Why have the headache of keeping track of how much loan is remaining? These are your conversations when you want to make any kind of purchase.
Which mindset is better than the other?
If you look closely, you will realize that the cashflow-committed lifestyle is becoming famous for the last 2 decades in India. Before 90s, the culture of buying things on loan and paying in the future was almost non-existent in the common man’s life. You first saved for things, built your wealth, and only if you could pay for it, you bought it. So everyone was forced to be a net-worth committed investor.
However, in the last 25-30 yrs, the culture of buying first and paying later has gained popularity and we are nudged to become a cashflow committed investor from all directions. Easy availability of loans on anything and everything and the peer pressure to match the lifestyle of friends circle along with rising aspirations and low control over one desire is the reason that most youngsters today are becoming cashflow committed investors.
When a person does not create their wealth creation on time and when their desires are more than what they can afford, it’s natural that one will turn out to become a cashflow-committed person.
Cashflow Mindset may lead to Debt Trap
However, you will also see that most of the cashflow-committed investors fall into a debt trap and then cashflow commitment is not just a choice but it becomes their internal nature or way of life.
On the other hand, I have observed that most of the people who create good wealth and are on the path to financial freedom are those who are of “networth committed mindset” as they keep their desires in check and are successful in postponing their wants to the point which makes sense and also balanced out things.
This is a vast topic and I want to limit myself to speak on this. I think you got my point and now you have to answer yourself on what is your internal design as an investor and do you think that design is helping you in life. What are the pros and cons of your design? Can you share in the comments section?