If you know the feeling of having all of your groceries scanned in the check out line, just to realize you have to put some back because your card was declined, then you know what it’s like to operate with no margin.

On the other hand, if you have four or five months worth of income sitting in an emergency fund as suggested by many financial experts, and your basement floods, you know the comfort that comes from being able to write a check to have the problem go away, creating very little disruption in your life (after the initial pain of realizing your basement flooded of course).

I have been in both situations and margin-free is no way to live life.

What is Margin

Margin is that sweet cushion between how much money flows into your bank account each month and how much you spend.

Here is a graph that shows how margin can work over a person’s lifetime.

Obviously, the more margin a person has the more insulation and security they have against calamity.

However, there are lots of other benefits that come with the healthy margin that most people don’t recognize.

For example, the decision-making that occurs within a family with margin often is much different than that of the family spending as much as they make (or more)

This comes as a result of the options that margin brings.

The irony is that margin creates more margin.

Once you start building margin through intentional planning, frugality, willingness to work, and investments into the high quality cash flowing assets, it becomes much easier to accumulate more margin.

For example, you will most likely purchase your first rental property with other people’s money causing lower cash flow from the deal than if you bought it with less leverage or your own cash (higher debt payment=lower monthly cash flow).

However, as you start to grow a portfolio of rental properties, the cash flow from each one starts to accumulate, and soon you have quite a bit more cash margin available AND your ability to buy more rental properties with your own money or larger down payments creates even higher cash flow on future properties.

So the margin exponentially grows.  Pretty sweet!

So How do I Create More Margin

It’s very difficult to create a significant amount of margin with W-2 income alone.

It’s like trying to get in shape and the only healthy thing you are doing is bicep curls.

This is better than doing nothing, and you will make a little bit of progress, but imagine the difference if you combined this one exercise with eating a healthy diet, getting a good nights sleep, drinking lots of water, and working in other exercises as well.

All of the sudden your results toward getting fit would be massively amplified.

This is the exact same thing that happens to your finances when you get serious about building margin in your own life.  You look at all the ways you can amplify your financial results, like creating a written budget, cutting out excess, educating yourself on personal finance, or investing in cash flowing investments.

There are so many other ways to amplify your results rather than collecting a W-2 paycheck (or the bicep curls of the financial world as I like to call it).

For the purposes of this article I am going to focus in on the margin super charger that is the ownership of cash flowing investments.

Why Own Cash Flowing Investments

I’m sort of a personal finance hobbyist and have tried a lot of different strategies in my pursuit of financial freedom and have found that every smart financial decision leads to a better overall financial picture, but nothing creates wealth as quickly (and with as low of risk) as purchasing solid cash flowing rental property.

Most people will see the few hundred dollars per month of extra income a rental property creates, but will overlook all of the other factors that are working to increase that margin underneath the surface.

A few of these are:

Built-in equity from finding a great deal or rehabbing value into your property.  This means either buying a property for less than you can sell it for or improving it so that the amount owed is much less than the amount it is worth.

For example, if you find a great deal on a rental property that you can purchase  for $80,000 and put $20,000 into renovations, to make it worth $130,000, it is very similar to adding an extra $30,000 to your bank account, albeit less liquid and you have to pay closing costs to sell the property and access the money, but it’s there on your balance sheet and just one more way your margin is growing.

Tax write off‘s are accumulating as well.  At the end of each year the IRS lets you write off (or depreciate) 3.6% of the value of your house and any interest you paid on your loan.  So beyond the extra cash flow you are getting from the rental, the investment is amplifying your W-2 income by allowing you to give less of it to the government each year.

Over time, the rental is building appreciation as well.  On average the US housing market appreciates 5% per year, which means your equity is growing.

Finally while the property is going up in value, your loan amount, or principle, is being reduced each month because your tenant is paying down your mortgage with each rent payment made, once again increasing the equity in the home even further.

The difference between building margin with W-2 income alone and adding assets to the mix is like going from just doing bicep curls to getting on an Olympic training regime.

You’re going to work either way and acquiring the assets will take more work than a 9-5 alone, but the results are exponentially different in the end.

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