« Flow vs. Stock »
Do you know the difference between stock and flow? Sounds silly but most people don’t. In short:
- Flow is a movie.
- Stock is a photograph.
- To become truly wealthy, turn the movie into a photograph over time.
The flow variable is time-dependent. Earning $500/month looks awful, per hour looks great and per minute looks like the Empyrean itself. However, it can be deceiving. For example, earning $500,000/year can easily trick you into thinking that you are rich.
The stock variable is a picture you take from all your assets, the true expression of financial freedom, especially if they generate robust cash flow and appreciate over time.
This entire intro leads us to the main topic: the ex-NFL player curse. Here are some salary figures from the NFL (source: CNBC):
- Rookie: $480,000
- 3-year experience: $705,000
- 7 to 9-year experience: $915,000
- Median: $860,000
Rich athletes, right?
“[…] According to Sports Illustrated, 78% of NFL players who are retired for only two years file for bankruptcy […].”
There are many reasons why athletes go broke, and getting into their personal struggles is not something we desire. The point here is the need to make the distinguishment between flow and stock. People imprisoned into the illusion of being rich due to a robust flow, usually don’t plan their stock.
There is a vast literature out there from real investment books to self-help gibberish that teaches people how to become wealthy. The formula to avoid the curse is simple, though:
Keep your expenses lower than your income. With the excess cash, buy assets that appreciate over time and generate cash flow.
I tried to sell it as a book but the publishers refused to print a book that’s only one sentence.
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Top 10 Average annual player salary in the NFL in 2018/19, by team (in million U.S. dollars)
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