Understanding Your Cashflow
Show me the Money!!!
"The more skilled you become with money, the more possible your dreams can be."
Glenda is a senior operations manager for a mining company, and was earning $250,000 a year. Despite her high income, she found that she had very little money left for saving, and had only an average amount in superannuation. She had her own home, but still had a high mortgage to pay and very little equity in it.
She said, "I earn good money, but I don't know where it's all going. Nothing's changing in my life. I know I need to be doing something."
A well-meaning friend suggested she reduce her taxable income by upgrading and leasing a new car. But this would only reduce her tax liability, and she knew it wasn't enough to get ahead. What she really needed were strategies to use her salary better.
When I started working with her, she quickly realised tax-driven decisions were not enough to create wealth. She learned about wealth creation, and in particular the importance of cash flow. She realigned her debts, set up investments in managed funds, and bought an investment property.
Because she now uses her cash flow efficiently, she has greater security and peace of mind, and isn't constantly frustrated by her lack of progress. What's more, she can still afford to spend money on luxuries, knowing she is building a strong financial future at the same time.
What's The Point?
Did you know that many people with wages above $100,000 feel broke most of the time? On the other hand, many people who earn $30,000 or less feel that they're doing well financially.
Financial security doesn't depend on how much you earn. It's determined by how much you keep - and what you do with what you keep. That's what we call "cash flow". As the name suggests, it's the flow of cash in your life: from the time it arrives in your bank account until you spend it.
For people like Glenda, the money was flowing so quickly they hardly notice it's there. They are the kind of people who say, "Money talks, but to me it only says 'Goodbye'"! They think the solution is to earn more money. But more money won't solve the problem - in fact, it may make it worse. If your financial blueprint is to spend everything you get, an increase in cash will probably result in an increase in spending. The first building block for achieving your dreams is to understand cash flow. Over the next few weeks I'll explain why it's important, how to control it, and how to make it work for you.
The four key things I will teach you about cash flow are:
- Understand Cash Flow:
First, I'll explain the cash flow patterns of the poor, the middle class, and the wealthy. You will understand (perhaps for the first time) how wealthy people use their cash flow to build wealth and still manage to spend money on expensive toys.
- Know Your Cash Flow:
You will do a simple analysis to determine your current cash flow, so you know the hand you have to play.
- Master Your Cash Flow:
I'll then show you how to become a master of your cash flow.
- Review Your Cash Flow:
As you get more control of your cash flow, you will find ways to keep improving it. So I encourage you to reassess it regularly to accelerate your financial growth.
By controlling the flow of your money, we're not talking about going on some sort of strict "financial diet." Of course you need to spend money, even on those little luxuries that make you happy. The key to money management - and to so many other parts of our lives - is finding balance. When you find the right balance between what you earn and what you spend, you can enjoy those luxuries and build for your future.
Posted by Tracey Sofra at March 10, 2017