Cash Flow…The # 1 Key To Financial Freedom-Part 2

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Creating Cash Flow

In the last post we talked about the importance of cash flow and why having a good positive cash flow is essential for savings, reinvestment and good overall financial health. Cash flow is defined as the total of all the incomes coming into your household minus all the expenses going out of your household. A strong positive cash flow is the most desirable of all positions to be in, however, it is important to recognize that there may be short phases in your life where that won’t always be possible.

cash flow1

Positive cash flow allows us options. It allows us to be discretionary to a larger extent, and enables us to put more money aside then we otherwise would be able to. That money could be funds earmarked for a college fund, a child’s wedding or our own retirement. Having positive cash flow also means that we are not having to borrow as much money and that in turn cuts down on interest expenses, saving us money that can be put towards other things such as paying down long-term debt.

If positive cash flow is such a desirable thing then how do we achieve financial nirvana? Let’s take a look at the process shall we?

5 Critical Steps For Creating Cash Flow

Making sure that you do not overspend your income every month (or whatever other unit of time you choose) sounds brutally simple, and it is. Brutal and simple. And unless you have nerves of steel and the internal self control of a robot, it isn’t going to happen either. Things as small as a vacation or a used car can blow that definition away. However the vacation and car can be budgeted over a period of time (one year or two years). None of this is easy or even pain-free, but you have to decide at the start if you want the goal of financial freedom, or you do not. If it seems too hard and you decide to continue to overspend, then buy lottery tickets or encourage older rich relatives to take up high risk hobbies like parasailing or sky diving. Otherwise, read on.

1. Add up all your sources of income. It is important to note that income can only be counted in this definition if you have it in cash or near cash. Changes in your investment portfolio statement do not qualify as income unless they are converted to cash or gold or cashed into a bank account. If they still exist as securities and equities, then they are still just profits and you cannot eat profits. They don’t drive particularly well either.

cash flow2. Add up all the expenses that you have on your credit card and bank statements. Account for all credit and debit purchases. If you’re like me, you also have to count all your cash purchases too. Everything. From postage stamps to renewal fees for your phone plan to toilet paper to cheeseburgers. Mortgage payments, life insurance policies, tax instalments. All of them.

3. If your income exceeds your expenses by a wide margin, congratulations. You’re where the rest of us want to be. If they don’t and mine sure haven’t at times, then either you have to find ways to boost incomes or to cut expenses. It really is that simple. This salient fact escapes entire governments, but there is no other way to expect to attain financial freedom except by having a positive cash flow.

4. Take the difference ( your positive cash flow) and split it into three piles. (I am talking figuratively here). Use the first pile to pay down any debt that you have. Use the second pile for long-term investments. (real estate, precious metals, rare art if you must). The last pile belongs to you and you can use it how you wish, gym memberships, trips to the health spa, aged whiskey or a tropical vacation. It’s entirely up to you.

5. Do it over and over again.

Now that was easy wasn’t it? Too easy, and it doesn’t always reflect real life. I’m sure you can tell me of dozens of instances where it won’t work well, but overall it is the only way it will work. If you deviate from it you will have to find a way to get back to creating positive cash flow or you will pay the price. And the price is very steep, very steep indeed. I know, I’ve been there. You don’t want to go.

Be honest with yourself about your expectations and about your expenses. Making the small sacrifices now to create positive cash flow will pay off for you down the road. Soon enough that you will see the benefits in your near future, not just off in the hazy distance of old age when it’s hard to get excited about having an abundance of money to spend.

What is your cash flow? How do you keep a handle on it?  Any ideas, tips to share?

Till Next Time….

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Sigrid McNab

Skype: sigrid.mcnab

Email: sigridmcnab@gmail.com

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About Sigrid McNab

Sigrid McNab is the author of #1 Amazon Best Seller, speaker and the CEO and Founder of sigridmcnab.com. Sigrid specializes in blogging, attraction marketing, and generating highly qualified leads. Sigrid teaches people how to build a successful online business.

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4 Responses to “Cash Flow…The # 1 Key To Financial Freedom-Part 2”

  1. Dagmar Wichary Says:

    Good Idea, I think we also might need another pile for unforseen expenses like sickness or repairs of a car or House

    [Reply]

    sigrid Reply:

    I agree Dagmar, thank you!

    [Reply]

    Reply

  2. Diane Grant Says:

    Thank you for posting this, basic principles, but such good reminders! I will be sharing this with a couple people I know that need to hear these things. We wonder why America and Americans are in such debt, somehow, people forget the financial principles are like the law of gravity, it doesn’t hurt until it crashes!
    Diane Grant recently posted…I Want To Be Like ThatMy Profile

    [Reply]

    sigrid Reply:

    You are very welcome Diane. I’m glad that they are helpful.

    [Reply]

    Reply

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