Managing Cash Flow Is Critical

Cash is king!  This is a statement I have heard my entire life.  It is critical to a comfortable daily life but elevating currency to royalty status seems a bit hyperbole.  There are many aspects to managing your cash flow that are simple to master.  First, the old adage of “spend less than you earn” is an axiom of truth.  For families that use credit cards to elevate their lifestyle beyond their means, the day of reckoning comes quicker than anticipated.  Additional stress and challenges are encountered, and solutions are in short supply.

One of the best tools for managing your cash flow is to monitor your expenditures.  Every penny spent should be tracked for a period representative of your lifestyle.  For example, consider one of the apps on your phone as a method of recording your spending.  Review the record every few days to determine where you are spending your money and compare it to your desired areas of spending.  

A budget is necessary in all phases of life.  Many people think a budget is needed only while you are younger and working toward your career goals.  However, I am a big believer in the art of focusing your efforts in a manner that will provide you with the best outcomes.  For example, if you are budgeting to save 10% of each paycheck for support in your future yet you spend first and save what is left, you will not meet your goal.  The better method of saving is to emulate the wealthy and save the 10% first and live on the remainder.  In this manner you are forced to curtail the spending of funds since you have fewer discretionary dollars to spend.

Only one entity exists in the United States of America that has the luxury of spending first and finding the cash flow to pay for it second – the U.S. Government.  The leaders of our country are currently negotiating the increase of our debt limit (i.e., our borrowing capacity).  Do not be confused.  This is a mortgage on the future generations of our citizens.  It is a fact that this balance has ballooned to more than $31,457,000,000,000.  To meet our country’s obligation to maintain the debt requires 12% of the federal budget or $384,000,000,000 annually according to the U.S. Treasury Department.

The simple principles explained in this article to help your family manage cash flow can be applied to the federal government.  By utilizing a balanced budget requirement through a constitutional amendment, the annual spending will match the annual receipts for a fiscal year.  This will be painful, at first, but will yield a leaner government with far less fraud, waste, and abuse than that we currently experience.

To avoid cash flow problems, it is critical that you control your discretionary spending.  Minimal use of credit cards should be your goal and the balance paid in full each month.  Lastly, large purchases should be acquired only if you can place a substantial portion of the price at the time of the purchase.  

Managing debt is a skill that must be learned early in life.  Consider indebtedness only for those assets that are utilitarian and/or long-term use.  For example, houses and land are suitable for borrowing purposes.  However, a new mink coat or Rolex watch are not.  Particularly useful is the borrowing of assets that generate cash flow such as rental properties.  In this instance, the lessee renting from you will be paying your mortgage, taxes, and insurance on the property on your behalf.  Isn’t this a great country?!?!

Cash flow is the most critical concern of retirees.  Controlling your indebtedness as you transition to retirement will help you gain confidence in the years of your next phase of life.  Do not approach retirement with the same attitude as your working years.  Cash flow is possibly lower and comes in different frequencies than when you were working in your career.  To help you develop a plan to increase your probabilities for success, it is vital that you seek the advice of a Certified Financial Planner™ professional.  Sir Richard Branson, a billionaire and owner of more than 400 companies, said it well when he stated, “Every success story is a tale of constant adaption, revision and change.”  

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Three Simple Steps to Secure Your Future

The word “retirement” sounds pretty scary to most people. The reason for this emotion is that they have failed to plan properly and lack confidence in the process. This article will provide you a simple, yet effective, roadmap to reach your retirement objectives.

First, stop thinking like everyone else when it comes to finances. Yes, it is fine to be different. You must understand that your circumstances in life are most likely different from many of your friends. Some employers support their employees in planning for their futures while others do not. Your new mindset should be that of “I will depend on no one but me for my future plans”.

Do you often wonder why the ultra wealthy have the financial security they do when they may have started life in a lesser social/fiscal position than you? Do they know a “secret” formula for success that has eluded you in life? The answer is a resounding NO. However, the ultra rich think far different than the typical person. For example, to accumulate wealth you must do this simple task: 

Invest for retirement first and then spend the rest

If you have a goal of saving ten percent of your income, place this 10% in your retirement and then plan your spending with the remaining 90% of your paycheck. For many of us this will sound very opposite than what we have been doing for our adult lives. Remember, it is OK to be different because you have different dreams and aspirations than anyone else. Don’t listen to the negative comments of the mass population who struggle from paycheck to paycheck with no change. You can make this change rather quickly and simply.

Second, learn to live within your means. This step requires you to know where each of your dollars are spent. To accomplish this, write down every penny spent for a week. Upon the conclusion of the week, categorize the areas you have spent your money and you may be startled when you become aware of where your money went! For example, “Did I really spend $32 on specialty coffee this week?!?” “Do I need all of the subscriptions that I don’t read regularly?” “How did I accumulate a bad habit, like tobacco use, that costs me $40 per week or $160 per month??”

Once you analyze your spending, you will quickly see areas you may derive savings for a better purpose – your future. The most difficult part of this process is writing everything down. To accomplish this, purchase a small notebook and carry it with you at all times. Record every penny you spend for whatever reason. Be honest with yourself. The only person to be cheated by not being honest is your future you.

Remind yourself daily, if not several times per day, the “why” for taking these measures in your life. You deserve a comfortable retirement, in terms you define, and can reach your goals with small steps performed on a daily basis. The action step to take is:

Know where your money is being spent and correct course

Lastly, Step 3 is the most impactful, powerful and simple of the steps to reach your retirement goals – measure your progress and celebrate when reaching small goals. The purpose of this step is to remember that you are on a journey and the lifetime goal is too far away to see. The best method for reassuring yourself of the progress you are achieving is to look for the next step in conquering your next challenge, not the ultimate lifetime goal. The last action step is:

Celebrate small wins frequently!

To assist you in the process of defining your roadmap for the future, you may wish to seek out a financial adviser or CPA that specializes in retirement planning. The price paid by far too many people for failing to plan is very severe. Don’t pay that price, take these simple steps today to design the future you wish to live.

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