Why You Need to Improve Your Cash-Flow, Today!
In this episode of the Financial Griot Podcast, Lovely and Lawrence talk about cash flow positivity during a time of high inflation and even higher prices.
Most people don’t know how much they spend monthly or even how much they earn. This is a good time to pause and do a mid year inventory so you can make sure your money management skills are up to par, pre-recession.
It’s up to you to be prepared for every opportunity. Improve your Wealth Vocabulary today by learning that Cash-Flow is truly king!
Table of Contents
Pros and Cons of Carrying Cash, Especially in 2022?
In business and at home, Cash is the money readily available to meet short-term obligations.
Cash is the most liquid form of current assets. Financially stable homes and organizations maintain sufficient cash (or cash equivalents) to run the day-to-day operations. This is should cover the basics i.e. housing, transportation, food, other necessities and consumer discretionary expenses.
Insufficient Funds
Most people struggle to maintain cash in their checking, so much so that banks increased their average overdraft fees from $21.57 in 1998 to over $33.58 in 2022.
Banks’ non-sufficient funds (NSF) revenue reached an estimated $15.47 billion in 2019, according to research released today by the Consumer Financial Protection Bureau (CFPB).
The Big three banks—JPMorgan Chase $JPM, Wells Fargo $WFC, and Bank of America $BAC brought in over $1 billion. When the checking isn’t enough, people turn to high interest credit cards. Basically, making a bad situation worst.
Don’t get me started on taking cash advances from your credit card. You might as well throw away money.
Excess Cash Problem
While the median US household is spending more and saving less, some are doing the opposite.
Some people are maintaining excess cash through either fear or anticipation of unknown expenses. Excess cash on the balance sheet has its advantages and disadvantages.
Especially as we enter a global recession, those with extra buying power will win big if they time the market correctly. But that’s the drawback, timing it is nearly impossible.
What I find is that most people are insanely afraid.
I remember seeing couple sit on $75,000 in 2020-2021, instead of investing for nearly 80% compounded gains. You can really miss out on building wealth. All of this, while inflation reducing your buying power.
That’s $75,000 can only buy $69,750 by 2021.
Worse yet, it’s now only able to buy $64,170. That’s the issue with inflation. Keep your money under a mattress doesn’t cut it anymore. You have to deploy money to earn you more money. That’s the name of the game. Anything less increases your wealth gap.
Cash is Fine But You Need Cash-Flow in Your Wealth Vocabulary
Most Americans are either math illiterate or financially insecure. Mixing both makes for a terrible recipe of Financial instability. So it’s easy to see the baby fixation on cash. In contrast to the baby steps, Cash-flow is the movement of money in and out of your checking account.
It seem simple at first but you have to make the pivot to improving your money management.
First track the amount of money you bring in and double check where all the cash is going. For the average person, there is likely one cash inflow aka your job. You lose that, you are likely to lose everything. This is why the rich learn to have multiple income streams.
Why? Well that’s also simple. It helps balance the limitless expenses or outflows. If you want to grasp this lesson, I highly recommend Personal Capital App.
Here’s how to calculate and improve your money management:
- Add your (Net) income,
- Subtract your expenses,
- Account and Subtract for Misc. Annual or Upcoming One-time Expenses, and
- Be mindful of your Taxes.
Why is this important?
This exercise will help you address either the fact that you aren’t making enough and/or you are spending your money unwisely.
The quickest way to increase your funds is to make the massive cuts in the big three section.
Housing, Food, and Transportation
For most people, these three represent over 60% of every dollar that they make. While I can’t in good conscious tell you not to eat, I can recommend that you downsize your living arrangements. You can net as much as 30% increase in your wealth per month. With the extra money, you can pay off more debt and invest in faster increments.
Read this for tips on how to save as much as $10,000 annually.
This is what Cash flow management is all about. The goal is to help you to meet your existing financial obligations as well as plan for the future.
As you do so, you will get closer to Financial Freedom.
Connect with TFG Crew featured in this episode:
- Lovely Merdelus – Entrepreneur and Small Business Growth Specialist @lovelymerdelus
- Lawrence Delva-Gonzalez – Federal Auditor, Blogger and Tax Specialist @theneighborhoodfinanceguy
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