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What Is Cash Flow?

I was asked one time to describe what I meant by statement of cash flows, or cash flows in general. This is what I would consider to be cash flows of a household or business.

A good analogy is to think of yourself as a fish, perhaps a trout or a catfish. Your family would be part of your school of fish. Now think of all your assets as a lake, with water flowing in (income) and water flowing out (expenses). Over time the size of the lake determines how comfortable your life will be. The more income flowing in, the larger the lake, the more comfortable your fish lives will be. But if the lake starts to dry out, life becomes much harsher.

Taking it one step further, the larger and longer time the incoming river has been running, will dig a deeper channel, funneling even more water into your lake making it grow exponentially bigger. The same can be said of the outgoing river from your lake as well.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.