Three Time Horizons

What it is

This is the framework I use to decide what move I should be making. I call it the three time horizons of wealth.

Did you know that you could be extremely wealthy but still struggle to put food on the table? That’s exactly what happened to me. I was worth millions of dollars on paper, but I was trying to figure out how I was going to pay normal bills. Because here’s the thing — your personal financial statement is not going to buy groceries.

So I always look through the three time horizons. There’s the short term. This is like your job or a small business bringing in money on a weekly or monthly basis. You need this to survive. Then there’s the medium-term. These are like flips — big chunks of cash that you bring in every few months. This is what helps accelerate your growth. And then there’s the long term. For us, those are rental properties.

Why it matters

A lot of new investors have read all the stuff about rentals and passive income on places like Bigger Pockets. They’ve heard about legacy wealth, generational wealth — and that’s all true, that is the goal. But if you’re in a cash crunch, you just don’t need a diet plan. You need income now.

It’s like a guy walks into the ER in the middle of a heart attack. He’s clutching his chest, can barely breathe. And the doctor sits him down to talk about long-term health planning — the meal plan and the cardio routine. That’s how a lot of new investors think. They don’t need a salad. They need heart surgery.

When you’re starting out, most of your income is going to come from that first bucket, the short-term bucket. But over time, if you play it right, more shifts into the medium-term and the long-term. Eventually all of it is in the long-term. And eventually those rentals are also going to start bringing your short-term cash through rental income and your medium-term cash through cash-out refinances. But you can’t jump straight to rentals if you’re broke.

Your job puts groceries on the table. What you do after hours — flipping houses, investing, starting a business — is what gives you what I’d call breakaway money. And you have to have the discipline to do that while everyone else is watching Netflix.

How it shows up

Pro investors are always balancing tomorrow’s wealth with today’s cash. That’s habit number one. The question you have to ask yourself: which bucket needs attention right now?

Everything is a flip until you’ve earned the right to hold it as a rental. Don’t try to keep wealth until you can actually afford to keep it. If you keep every house as a rental before you have enough cash flow to sustain yourself, you’ll run out of operating capital and be forced to sell at the worst time anyway.

Think of your real estate organization like a car engine. Without oil, your engine locks up. Cash flow is your business’s oil. The flips generate the oil. The rentals build the engine.

Related

cash flow, brrrr, rental income, wealth engine, breakaway money, base hits