How do you make money so you can pay the bills?
Most people go to work and give of their time, effort, and energy so they can collect a paycheck at the end of the month.
Most people make money this way because they haven’t really thought of any other way. It’s what they learned in school.
Then you learn that there is another way. That you can become financially independent through investing in the stock market.
If you were to live off your stocks and shares, how would you get money out of them to pay the bills? Because you have to pay rent and buy food for the family. That’s a question I often get.
How do you get a cash flow from stocks? Do you sell shares every time you have to pay a bill
In this blog post, I show you five methods to create a cash flow.
1. Sell Shares to Get Capital Gains
One method, of course, is to sell some of the shares.
This method works best if you only sell a few of the shares, so there is still something left that can continue working for you.
Hopefully, the shares have risen a lot since you bought them, giving you a good return.
If, for example, you invested $100,000 in Apple in 2018, which has grown to more than $400,000 since then, you can choose to sell some of the shares. If you sell to get $50,000 out, you still have $350,000 in Apple shares.
The problem with this method is that your net worth shrinks every time you sell some stocks to make a living from them.
Another problem with this method is that you have to have a fairly large fortune and a lot of patience to be able to become financially independent only by gradually selling shares.
2. Go For Dividends
When companies make profits, they can choose to pay part of it to the owners.
Let’s say you’re one of the three owners of an architectural firm. At the end of the year, the architectural firm made a profit after tax of $500,000. The firm can choose to pay the three owners $100,000 each and keep $200,000 in the firm for future investment (or just a buffer for bad times).
The same goes for listed companies. When they make a solid profit, they can choose to pay some of that to the owners, who in this case are the shareholders. It’s called dividend and goes directly into your account without you having to do anything.
A lot of people love this method, because it feels safe – and obviously you don’t have to sell any of the shares.
The main problem with going for the so-called Dividend Kings (companies that pay a lot in dividend) is these companies are often very mature. They choose to distribute the profits because they have difficulty finding new areas to invest in.
Companies that see a future with high growth, on the other hand, will prefer to invest in expanding into new markets, hiring new talent, inventing new products, and supporting the growth opportunities in any ways they see fit. So they’ll prefer not to pay dividends.
3. Sell Options
First a warning: Do not begin trading options without thoroughly understanding what it is.
It’s too complicated an area to explain in a blog post, but if you want to know more about options, I teach it in my value investor course, which I run twice a year.
In short, options are a type of contract that gives the buyer and seller of the option contract either the right to buy or sell 100 shares or an obligation to buy or sell 100 shares if they reach a certain price.
When you sell options, you can create an income without buying or selling your shares, which means you can become financially independent quicker.
4. Do Swing Trading
Swing trading is a method of buying and selling stocks in a way where you leverage the natural waves of a stock’s movements to get a cash flow.
You use technical analysis to find out when it’s a good time to buy and sell the stock.
It’s not the same as day trading, as day traders are often in and out of a security in one day (hence the name).
The natural wave in a stock’s movement can last for weeks or months.
5. Combine Value Investing, Options, and Swing Trading
If you combine options trading with techniques from swing trading, you can get a really effective way to create a cash flow so you can become financially independent faster.
If you go on to combine these with value investing, making sure to do options trading and swing trading on companies that you have taken through your checklist and analysis, you have a solid machine to create an income that you can make a living from.
To learn more about value investing, download my free e-book Free Yourself right here.