The Importance Of Cash Flow
If you asked me what percentage of people know how much they spend each month I couldn't tell you. But I DO know the number isn't very high and I also know that the percentage of people that know HOW MUCH they make each month is higher still.
Do you know what you get when you know how much you earn, but not how much you spend per month? Debt.
DEBT
But not only debt, not knowing how much you spend per month also makes it difficult to save up for the goals that matter the most to you.
That's why I full subscribe to the notion that it's not how much you earn per month, but how much you keep.
Most of us use our brains, energy, and time to earn money. Put those things together and you get your life. So you trade your life energy for money.
You give your life, and you get some money in return.
Yet people waste money every single day! Often in little bits here and there, but sometimes in one big purchase. I'm not saying that you can't EVER spend money, but only to understand that anything you spend in one area is money you won't have for another.
We all know someone who complains that they never have any money but is always buying lunch, new clothes, and going out on the weekend. Hmm, I wonder why you don't have any money to go on vacation. These types of people who, when they do go on vacation, throw everything on the credit card and make the minimum payments for the next 10 years.
If your money = your life forces traded, then being in debt means that your life is now owned by someone else. You are a debt slave.
This is why it is extremely important to know where you are spending your life (money). That means you need to track it.
Now I used two programs in the past, “You Need A Budget" (YNAB) and “Mint.com.” Both are really useful programs to track your expenses. YNAB is an offline software program, while Mint.com is a free online program. But remember if something is free, then you are the product. Mint.com will analyze your finances to obtain data to sell. Up to you to decide if you are OK with that.
Nowadays I use PersonalCapital.com as it is more focused on wealth building, which is the phase I am in now.
You can also just use an old-school ledger and a pencil if you wish. It doesn't matter what method you choose, just that you do it.
WHY
The purpose of tracking is to know where you are so you can head to where you want to be.
Imagine if you were blindfolded and dropped into the wilderness with a map and compass. It wouldn't be very smart to just start walking in a random direction and hope for the best, but this is exactly what millions of people do.
No, you would want to figure out your position on the map and then plot your path to the nearest town.
Put into a financial sense, you want to figure out how much you earn and how much you spend to discover your cash flow. Your cash flow is how much money you have to work towards your financial goals each month.
Want to backpack around Europe next summer for two months and think it will cost $4,000?
If you cash flow $400 per month it will take you 10 months to save for the trip.
Cash flow $1,000 per month and it only takes 4 months.
In the first example you could take one trip per year, but in the second you could take two. How does 2 months traveling around Europe and two months in Australia each year sound?
The higher your cash flow, the faster you can reach your financial goals.
INCREASING YOUR CASH FLOW
Now that you see how powerful cash flow can be, you might be thinking of ways to increase it.
Short-term there are two ways: Spend less and/or earn more.
Spending less is often known as being frugal, but it doesn't mean you have to give up what you want. For instance, maybe you have been going out with your friends to dinner and drinks every Saturday night. That can really add up.
The trick to being frugal without sacrificing the present is to understand the underlying WANT from something. In the example above you want food, drinks, and friendship. Good news! You can get that without spend lots of money going to restaurants and bars!
Why not have them come around to a potluck dinner at your place? Have them bring a dish and a drink. After dinner, maybe put in a cheesy movie that you can all laugh at or maybe play a party or board game?
You still have all the fun of eating and drinking with your friends, but with a much reduced cost.
The other way is to increase your income.
Sure, you could go ask your boss for a raise but that is going to depend on another person. What I like to do is grab the power of earning by doing side-hustles.
There is a whole gig economy out there, from driving Uber, delivering Amazon packages, to secret shopping. Anyone can find something they can and WANT to do.
You can easily grab a few hundred dollars per month if you just go and do it.
In the long-term, you can invest in different passive income sources to earn money even without working! Invest in enough of these and you can build up a cash flow high enough that you never have to work again. But that is something for another post.
CONCLUSION
Stop turning your life into money and wasting it on things that don't really matter. The power of cash flow is there for all of us if we only seek to use it.
By utilizing the power of cash flow we can turn it towards the financial goals of our lives.
You only have to step up and take it.
Cash Flow is King! Passive income is the Emperor ;-)
All hail the Emperor!
lol
@getonthetrain you reminded me once again why you need to keep the FIAT flowing.....................
I’m a fan of Mint. Being knowledgeable about financials at an early age can make a huge different in the long term. In the US we don’t do a good job of educating our youth about their finances. This knowledge gap has helped increase the wealth gap. It’s a vicious cycle.
Oh yes it can! Understanding the power of saving and investing compounded over time is a HUGE advantage for young people. I've always thought the taboo about talking about money was something created to keep a lot of people down. That's why I share my net worth updates each quarter.
Its very nice blog. I totally agreed with your article about cash flow. Cash flow can change the life of persons.its great post and helpful idea for the steemians. Thanks for sharing.
Hmm. A lot to ruminate on here. I think you're right on the money as far as how one can succeed given the current system. But I think that the problem is the system itself.
It teaches us just enough to be able to earn, but almost nothing about money except that we need to spend gobs of it to be happy. For the average person raising a family in decent conditions means either living with their heads just above water or going into debt.
But cash flow is the first skill to master, however one master's it.
By focusing on building your cash flow to have money to invest and then build up passive income sources is my way of not falling into the average way of life.
Yes, I personally manage my budget in an excel sheet, in which I include my investments in cryptocurrencies. I monitor that sheet daily, not because I'm obsessed with money, but to keep it updated and aware of my capital. Generally when I face economic problems, my answer is always, produce more money, I almost never have the opportunity to reduce expenses, since I only buy what I consider necessary.
True, reducing expenses can only go so far but income has NO limit!
Im really good at keeping track of my expenditure and save a good amount. I'm having hard time in investing though. I would love to read further about passive income that you stated above.
Sure thing, stick around as I spout off a whole bunch of knowledge like that (when I get around to it! :D)
Okay, you got me. I'll start keeping better track of my spending. :)
(Awesome post. Resteemed!)
I know you are turning into a SAVER now :D
By the way, I ordered a copy of Your Money Or Your Life. Should be here by the time I get back from Mexico. Thanks for the recommendation!
Nice, it really is amazing for developing the money mindset.
Thank @getonthetrain . Some really sound advice about money and what to do and not to do.
The part that resonated to me on a personal level is seeing this
My cousin who is older than me is in his mid 50s but has the mind of a teenager. My Aunt ( his mom) still helps him out on a monthly basis.
She got a hold of his bank statement and showed me for like 90 days.
The guy was spending on average of about $20 a day on eating out. Going to lunch with people at work. Stopping at the diner in morning on the way to work etc..etc..
It floored me and my mom. Some people are wired that way and just never break bad habits. And others pick up the slack 😕
Anyway thanks for the informative post 👍
That's $600 per month right there, $7200 per year.
That small thing adds up, doesn't it?! Plus, when you go out every day it is no longer special. It is just something you do that adds little to your life. If you refrain and then DO go out, well it is a treat and special!
You got it!! Primarily use YNAB and check Personal Capital dashboard occasionally. So important to know where your dollars go!
Hey! You're back. :D