Currencies of Life : Revenue is Vanity, Profit is Sanity, Free Cash Flow is King and Compouding Cash is Queen

Writing down these four wisdoms on what to do with money.

It doesn't matter if you're holding US dollar, Pound Sterling, Peso, Reminbi, gold or silver. What matter is how you obtain those currencies and what are you going to do with the currencies in order to support your life.

Revenue is vanity

Many people struggle here. For example, struggling to generate enough revenue to pay the bills, to show off to tech journalists on how great their start-ups revenue per month is.

Why most people struggle here? Because we are trained to look for income instead of asset. When we found lots of income instead of asset. We think we look good and like to kiss ourselves.

vanity - kissing own image on mirror

At the end, revenue is just a vanity metric. Yes, it does show that you've a viable business or income, but what's the point if it is not profitable.

Profit is sanity

Of course, the next stage is to minus cost out of the revenue. Whatever the left over is known as profit. As a business owner, your job is to focus on maximizing profit and lowering your cost.

profit - left over after deducting revenue with cost

Same concept applies to your personal finance as well. Measurement of profitability level is a form of sane thinking.

Free cash flow is king

The next step after orientating your mind to pay attention to profits instead of revenue is free cash flow. If you're investing in businesses or stocks, pay attention to the king(cash flow).

cash flow

A healthy free cash flow(king) is a sign that a company has opportunities to further enhance shareholder value. Price is what you pay, Value(cash flow) is what you get.

Compounding cash is queen

Let's not kid ourselves, whatever money you've right now...if the currencies are not "working" for you....then eventually they will lose their value after being out stripped by inflation.

compounding cash flow

Turn them into a bird-dog that will keep going out to grab more money back and turn the new money into more bird-dogs. The best way is still compound the currencies. Only a queen can beget more bird-dogs(compound). Take good care of your queen or queens.

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” ― Albert Einstein

  See also : Improving my financial vocabulary with Windows 10 Money

By AdamNg

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