I'm sure that over the years we have all heard and said that famous throwaway line "Cash Is King!" We've said it, quite frankly, without much thought, partially because we have all associated having cash in our hands and buying whatever we wanted or needed as the primary goal.
The truth is that as much as we all love having a little extra cash on hand, Cash as King, for the most part, ended in August of 1971 when then-President Richard Nixon temporarily suspended the Bretton Woods System and took the US Dollar off of the Gold Standard.
Since that decision, maintaining a cash position has been essentially a losing position.
The longer we hold our position in Cash the more we lose to inflation and the opportunity cost of being in an investment vehicle that compounds it's growth and stays ahead of inflation.
Enter the Real King.
Most of us associate Cash flow with being the lifeblood of our businesses. Companies rely on positive cash flow to finance projects, operations, and activities, as well as to invest. Without positive cash flow, a company just cannot meet its financial obligations.
Well, the same applies to our finances.
Without our positive cash flow or improved cash flow, we cannot meet our financial obligations without going into debt.
Before we talk about how to increase our cash flow, let's talk a little about some of the reasons why we need to improve.
One of the biggest challenges of living our lives from check to check is the stress and frustration that it causes us personally and all too often the stress it causes within our families.
We have either had this experience ourselves or seen the ill effects on others.
The strain of having to make trade-offs that hurt both financially and practically when we don't have the financial resources to meet our needs can have severe consequences.
So how do we Improve our Cash Flow?
Some of the primary areas that usually hurt us the most as we try to improve our tax flow are:
- Inefficient or no Tax Strategies. This first area can drain a good 50% or more of our earnings.
- Excessive debt and the added expense of interest. In some cases, late payment penalties can also add to the problem and stunt our cash flow even more.
- Finally, the lack of an efficient budget and a high expense to savings ratio.
These three areas form a triad that will choke and cut off the best of your efforts to have an effective Cash Flow that meets your needs.
Fortunately, even small reductions on things such as your mortgage, car payments, credit cards along with identifying additional tax deductions that you are eligible to take, can make a big difference in your Cash Flow each month.
Now you may say " Well that's easier said than done", but that's not the point. It's not about easy or difficult. It's about knowledge of the problem, possible solutions, formulating a plan and taking action, and replacing your old bad spending habits with new habits aligned with your Financial Freedom Plan.
If you are ready to treat your Cash flow like a business, then get your support team and financial resources in order and let's change the game!
First, I strongly recommend a CPA, a Bookkeeper, a Financial Planner and budgeting tools (Personal Capital, Mint, Quicken), that aggregate your expenses and can help you lay out and automate your budget. Yes, I know all or most of what I just suggested will cost you money but remember, you are a company.
You will have to invest to get the positive returns you seek.
The investment that you make in this support team and your resources will more than pay for themselves in just the cash flow that you are about to realize with your enhanced tax strategies, budget, and expense reduction plans. These costs will be paid for in spades by the time we get to your reinvestment strategy.
Now that you've improved your cash flow by improving your ability to keep the money that you earn, let's talk about making more money for you to save.
Every organization that I've been a part of will tell you that their people are their most valuable resource.
For your company, this is especially true. The first area of investment should be in yourself.
Your ability to improve or increase the value that you can bring to others or their organization will put you in the best position to demand the higher income that you seek.
Your commitment to improving your expertise in your chosen field or learning new skills and abilities that will make you more marketable, help you provide more offerings in your business, and may provide the leverage you need to command higher fees.
Warren Buffett said that "The most important investment you can make is to yourself." This recommendation holds true as it relates to improving your Cash Flow.
Next, I recommend that you apply some of your increased cash flow towards paying down even more of your debt. This enhanced debt reduction payment will continue to grow your ever improving cash flow.
The next option is to make your money work for you by investing in income producing assets as well as long-term savings.
Another area of your life that can significantly benefit will be your ability to give back to the causes, charities, and people that, like many of your friends and colleagues, you have always wanted to support more but could not.
Finally, you will have emotional benefits and an improved lifestyle as a result of your increased cash flow.
There are many similarities between managing your personal finances and managing your business finances. Cash Flow, though associated with your business, is critical to the success of your personal finances as well.
Discipline, focus, perspective, long-term goals, and being aware of risks are all important attributes of someone who can truly build wealth instead of living month to month or worse, living in debt.
I believe that we can learn and apply the habits that will ensure our financial security and peace of mind. Please share your thoughts and advice with the group. We would love to hear from you.