Cash flow is the engine of your financial machine. It’s the energy, the driver. If you can harness that energy and run a more efficient machine, you can make your money go much further.
I know you think I probably just came up with the most profound statement ever there, but we have actually been saying this in seminars and consultations since the 1980’s.
It obviously makes a lot of sense to get more life out of your money. But can it be done?
Well, let’s see. We all know people who always seem to have enough time to do the things they really want to do, right? My guess (because I’m not one of them) is that they give some thought to the things that are most important to them, and then set aside the time for those priorities and accomplish them first.
And we all know people who are always running behind the clock, with never enough time. (We’re looking for a show of hands here.)
Now, in the context of money, we probably also know people on modest incomes who seem to be able to take their winter vacation each year, a summer trip and otherwise do all the things they want to do.
(However, it just occurred to me that none of those people ever owns brand-new cars, the latest fashions, electronics or jewelry, or eats lunch and dinner out every day… Coincidence?)
On the other hand, not a single week has gone by for me lately when I have not heard somebody say, “I don’t know where the money’s going, but it sure is going…” or words to that effect.
In fact, I may have uttered a few similar phrases myself.
So, is the secret to harnessing cash flow as simple as setting priorities, developing a cash flow plan and then sticking to it?
Now, “simple” is usually the proper adjective applied after someone has successfully accomplished a task. “Complex”, “challenging” and “impossible” are three potential adjectives when approaching a new task, as you know. So, let’s acknowledge that, and then move forward anyway.
Your first step could be one of two things, so pick which is easiest for you. Your choices are to write down the things that are most important to you, short and long-term. These are your most cherished goals and the things you really want to accomplish, with or without a requirement for money.
If everything on your list has a big price tag, then work on it a little longer. Take it from a financial planner - the most important things in life cannot be bought.
The other choice for step one is self-knowledge. You really do need to know how you are spending your money now. You can gather much of this information fairly quickly by reviewing your bank statements, credit card bills and other sources of information about the past.
You will also likely need to track your spending for a month or two, to really find out where the leaks are. My suggestion is to use your smart phone or a pocket notebook to write down every dollar that is spent, every day.
Or, if you want to move out of the 90s you can use software or an app for this, which will provide you with a running total and save time.
Step three is to compare the two and examine any gap between what you have said you wanted do, accomplish or achieve, and how your money is being spent now.
A plan with professional input may be helpful, as one of your keys may be debt restructuring or more efficient investing.
Resources will include your financial planner, cash flow software and apps that are available all over the Internet, and real experts like Stephanie Holmes-Winton (Themoneyfinder.ca), Gail Vaz-Oxlade (gailvazoxlade.com) and their books and other guides.
Please give thought to this now, hopefully before you go out and overspend on last-minute presents. By being clever instead of extravagant, you will not only provide a more special gift for your loved one or friend, but you will also give yourself an extra gift as well.
* * *
Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIMis a financial planner and advisor with Christianson Wealth Advisors, a Vice President with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.