Cashflow Versus Capital Gain

Most of the people don’t know the basic difference between the 2 words Cashflow & Capital Gains and that’s why they struggle Financially.

Meaning of the both of these 2 words is very important in the world of Money, Finance & Investing. We will discuss in detail today that what exactly it means by Cashflow & Capital Gains? And what are the Pros and Cons of investing for Cashflow & Capital Gain.

What is Capital Gain? – Pros & Cons -

In Simple words, Capital Gain means “the amount by which the selling price of an asset exceeds the purchase price; the gain is realized when the asset is sold”

In other words, “Capital Gain is profit earned from the sale of an asset.”

Say for Example Stocks. Suppose you buy The Stocks of Company XYZ worth of Rs.1,00,000 today. And keep these stocks for 10 years in your Demat Account. Now after 10 years, the share price of Company XYZ appreciates by 10 times thus your 1 Lakh rupees investment becomes Rs.1,00,00,000 (1 Crore). So 1,00,00,000 – 1,00,000 = Rs. 99,00,000 (99 Lakhs) is your Capital Gain.

This applies for any Asset such as Stocks, Bonds, Gold, Real Estate, Art, Businesses, Websites, Blogs, Rare items or any other Assets on this world.

The main advantage of Capital Gain is that, it is really a Huge one in comparison with Cashflow. If you own some Asset for 10 years than you will have such a huge Capital Gain that you can retire with that much amount of Capital Gain.

The main Disadvantage of Capital Gain is that, Most of the time of your life it is “On paper” only. So the Capital Gain doesn’t realize until you sell your Asset. Say for Example, you may own a Home worth of US $ 1 Million. But you don’t have $ 10,000 to spend in your pocket. This is called Asset Rich but Cash Poor.

Many people around this world are Asset Rich but Cash poor because of the Capital Gains. The Capital Gains remain “On Paper” Only until you sell your Asset.

Investing for Capital Gain – When you Invest in Stocks, Bonds & Mutual Funds…. You are Investing for Capital Gains. When you Invest in Real Estate which doesn’t give you any Income, you are Investing for Capital Gains.

What is Cashflow? – Pros & Cons -

In Simple words, Cashflow means “Cash flow refers to the movement of cash into or out of a business, a project, or a financial product”

In other words, Cashflow = Income – Expense. Means anything that remains after deducting the expenses from the Income is a Cashflow.

The main advantage of Cashflow is that, as long as you hold any Asset, you will benefited by handsome Cashflow. Say for Example, This Blog. This Blog is my Internet Business & Asset. The main advantage of holding this Asset is that, as long as I will hold this Asset, I will get steady Cashflow which I can spend to enjoy my life unlike holding the Capital Gain Assets such as Stocks & Mutual Funds.

Suppose if I have $ 5000 in my pocket and I invest it in buying an Internet Business than I can enjoy both Cashflow & Capital Gains. Because that Internet Business will give me $ 300-500 Monthly Cash flow that I can enjoy as long as I hold the Asset. Plus when I sell the Asset, I will be benefited by Huge Capital Gains.

Now Suppose I invest same $ 5000 in Stocks or Mutual Funds, than I have to follow the Buy, Hold & Pray Strategy. Means I may realize a Huge Capital gains in future after 10 years but for that 10 years, I won’t have any Cashflow to enjoy my life.

Rich People Invest for Cashflow (+ Capital Gains Both) while Middle Class People Invest for Capital Gains -

Cashflow + Capital Gain Investments –>

01) Businesses (Offline & Online)

02) Real Estate (Rental Properties)

Only Capital Gain Investments –>

01) Stocks

02) Bonds

03) Gold

04) Mutual Funds

05) Real Estate Without Income (Non-Rental Properties)

All the Middle Class people Invest for Capital Gains while Rich Invest for Cashflow and that’s why Rich can enjoy their life like anything while Middle Class simply can’t…!!!!!