This might be one of the most valuable lessons I’ve learned over the years when it comes to investing. It’s something I picked up from my mentor, Ben, and let me tell you—it’s a game changer. These aren’t just random ideas; they’re filters I use for every investment decision. They help you get clear on what makes a good investment, and more importantly, help you say “no” when you need to.
The 10 Financial Filters Every Investor Needs
If you’re like me, and you get excited about every opportunity that comes your way, these filters are going to be your new best friend.
1. Enjoy What You Do
Investing is tough enough without dreading the work. You’ve got to like what you’re doing. I’ve found that when I invest in things I actually care about—like real estate or tech—I not only stay motivated, but I make better decisions. If you enjoy what you’re involved in, it’s easier to stick with it through the ups and downs.
This means taking the time to learn about the industry and understanding the nuances of what you’re investing in. Following news, meeting people in the industry, and staying in the loop with relevant media makes a big difference. When you love the work, it’s easier to navigate both the wins and the challenges.
2. Cash Flow is King
Let me be clear—cash flow is everything. You can have the best-looking investment on paper, but if it’s not bringing in money consistently, you’re setting yourself up for trouble. For example, rental properties? They bring cash in every month. That’s why I love them. But if all your money is tied up in something without cash flow, you’re going to feel it when times get tough.
Cash flow isn’t just important; it’s the lifeblood that helps you survive tough seasons and even opens doors for future investments. It provides the liquidity needed to cover carry costs and keeps the compounding cycle moving. When you’ve got regular income coming in, your money isn’t just sitting still—it’s working, growing, and multiplying with every cycle.
3. Control vs. Influence
This one can be tricky. When you invest, you want control or, at the very least, strong influence over the decision-making. If you’re just throwing money into something without any say in what happens, you’re playing a risky game. The closer you are to the decisions, the more secure you’ll feel. Trust me, knowing the difference between control and influence is key.
Think of it like this: influence is the voice of the passenger in a vehicle, while control is having your hands on the steering wheel, the gas, and the brakes. It’s also about knowing what you can and can’t control. You may not be able to dictate the market, but you can control your response. Having control over “the how,” “the when,” and the intensity of that response is critical.
4. Create Multiple Income Streams
Any solid investment should have more than one way of paying you. Real estate is a great example—it gives you cash flow, appreciation, and tax benefits through depreciation. If an investment only offers one of these, think long and hard before jumping in.
Think of it as a balance of immediate, mid-term, and long-term gains. Depreciation provides immediate income through tax savings, cash flow returns the principal over time, and appreciation is the long-term reward that builds wealth. And remember, the ROI needs to outpace inflation—ideally by double—to truly work in your favor.
5. Get Your Money Back in 5 Years
Ben drilled this one into me: aim to get your principal back in five years or less. It’s not always possible, but it’s a great goal to keep in mind. Whether it’s through appreciation, cash flow, or tax savings, having that timeline keeps you focused on the return.
This five-year goal isn’t just a nice benchmark; it’s long enough to be considered “long-term” while still being short enough to project market trends. It means that 20% of the initial investment is returned annually, so you can pull chips off the table and play with “house money” once your principal is back in your pocket.
6. No Headache Money (Proud Money)
I’ve learned this the hard way—don’t get involved in investments that cause more stress than they’re worth. I’m talking about avoiding anything that feels morally off or brings unnecessary drama. You’ve got to feel good about where your money’s going. If you’re constantly worried or embarrassed about an investment, it’s not worth it.
Sure, every investment brings a little stress, but that doesn’t mean it has to bring headaches. Think of headache money as anything ethically or legally questionable—like getting involved in investments that might face community backlash or endless litigation. It’s not about the money; it’s about the peace of mind and pride that comes from knowing you’re investing in something worthwhile.
7. Lifestyle First
Here’s the deal—if your investments are going to wreck your lifestyle, they’re not worth it. I remember when we had a bunch of rental properties and I was fixing toilets and handling repairs. That didn’t last long. After a couple of properties, I got smart and hired a property management company. Your investments should work for you, not the other way around.
This filter is about putting lifestyle above all else. Think about the worst-case scenario: will the investment take you away from date nights, family vacations, or personal hobbies? You’ve got to assume the worst and decide if you’re willing to work in the business or add additional capital during tough times. If the answer is no, then keep lifestyle first and walk away.
8. Immediate Amplifier (Meat on the Bone)
This is one of my favorite filters. When you invest, look for something that’s going to give you an immediate boost in value. For example, if you buy a run-down property and put $50,000 into a kitchen remodel, you might be able to increase the value by $80,000. That’s an immediate amplifier. The quicker you can create value, the better.
Ask yourself what you can do differently to improve the investment. What makes your approach better, and why hasn’t someone else already implemented it? Look for opportunities to create efficiencies, like reducing operating costs through a RUB system in an apartment complex to centralize utilities. Analyze revenue and expenses separately—they require distinct skill sets and may even need dedicated personnel to ensure the investment is optimized from every angle.
9. Cut the Fat and Control Spending
You don’t always need to make more money—you just need to spend less. This filter is all about finding areas where you can trim the fat. Whether it’s in a business, property, or investment, controlling expenses is just as important as growing revenue. And having a third-party—like a CPA—review your spending can really help here. Trust me, paying attention to the little things makes a big difference.
This goes hand in hand with the amplifier rule but focuses purely on cost control. Must-have fat in a deal can range from unnecessary personnel to excess real estate or outdated tech that’s just burning cash. An increase in revenue doesn’t justify an increase in spending. Every dollar spent must yield an ROI. I learned this from Greg Dugdale—having an unbiased third-party regularly challenge the spending ensures every dollar has a return.
10. Leverage Wisely
Leverage can be your best friend or your worst enemy. You want to make sure you’re getting great terms, with minimal personal risk. Non-recourse loans are a lifesaver because they protect personal assets if things go south. Make sure you’ve got the right financing in place and surround yourself with a solid team. This is one area where you don’t want to cut corners.
Ask yourself where the initial investment is being sourced from. Ideally, you’re using responsible leverage against an existing asset. Operational financing should be on competitive terms with flexibility for mid-term adjustments—no long-term lock-ins or prepayment penalties. Non-recourse financing becomes more accessible as you level up, and it’s a powerful tool for keeping personal assets separate from business risks.
The Bottom Line
These filters have completely changed the way I invest. They help me make better decisions and, honestly, they save me from getting caught up in bad deals. The truth is, using these filters means you’ll be saying “no” to more opportunities than you thought, but that’s a good thing. It forces you to focus on what’s really worth your time and money.
If you’re looking to build long-term wealth and keep your sanity intact, these filters are for you. Got any questions or want to discuss how to use these in your own investing? Reach out anytime. I’m happy to help.