Let’s Talk About Cash Flow
This is our Financial Planning topic for the month of April and we believe that It all starts with awareness. Cash Flow can be broken down as:
What’s coming in =
- Earnings from employment, side hustle, profit/payment to yourself from your business
- Passive income from rental property, investments
What’s going out =
- Savings/Investment contributions
- Taxes (withheld from employer or quarterly estimate tax payments based off of profit as a business owner)
Fixed expenses =
- Mortgage or rent, insurance premiums, car payment, utilities (phone bill, internet, electricity, water, heat)
Variable expenses =
- Groceries, eating out, entertainment, travel, hobbies
What’s Coming in – What’s Going out = Surplus or Excess spending
The surplus can be used towards your goals while excess spending will usually mean you are adding to a debt balance. While we may still hear the reference “balancing your checkbook” we know that it isn’t likely that this is the actual process that one takes to understand what comes in and out of your accounts. So, how do you stay aware? What’s your system? Do you use a budgeting App? Do you manually track your transactions? Do you monitor account balances on a regular basis?
We ask this question to every one of our clients and we receive many different answers. For us it’s not so much that you have the right answer, it’s more that you have an answer. A system that works for you to build awareness around your Cash Flow.
Do you need help sticking with a system? We are here to help.
If you have any other questions on this subject or want something cleared up, give us a shout. Let’s talk about it further.
Increasing Your Cash Flow
Last week we began to discuss Cash Flow.
When you think of Cash Flow, think of your money coming in as a flowing body of water.
If you’re employed, think of your primary source of income as the river. Think of your other income streams flowing into your household as tributaries. After all, they’re called income streams, right?
First, let’s see how you can increase your primary source of income. You can always ask for a raise, negotiate your salary for a new job offer, or find something that’s paying you what you deserve.
However, if there’s one thing we learned this past year, we learned how important it is to have multiple income streams. We never know what’s around the corner and what we rely on today may not be there tomorrow.
There are many different ways you can do this:
- Sell Your Skills: The freelance market is global and growing. With sites like Upwork, you can find plenty of opportunities that match your skill set.
- Create and Sell a Product: The list of things that you can create and sell is endless. If this is something you want to embark on, the best approach may be to focus on a hobby or passion. Let your creative side loose and turn it into a profit.
- Reselling: Do you have items in your house that you no longer have a need or use for? You can likely find a market and a buyer. Take Facebook Marketplace, eBay, or Craigslist, for example.
- Gig Economy: You can always drive for Uber or Lyft or deliver food for DoorDash and GrubHub, for example. Having a car and a smartphone can allow you to pick up some extra cash on a schedule that works for you.
- Invest in Stocks or Bonds: No matter your investing style, your holdings pay out dividends or interest payments monthly or quarterly. Growth stocks, while riskier, may offer enticing returns. It’s best to start young and reinvest this income to take advantage of compounding.
- Invest in Real Estate: Passive investing through real estate is a great additional income stream. It could be separate property or properties that receive a rental income. You can also rent out a room or do short-term rentals of your primary place of residence via platforms like AirBnb. These income streams can also help you reduce your expenses or pay down debt.
We will revisit the topic of income streams and provide more breadth and context. But for now, check out what our CEO, Calvin Williams, had to say about this in a CNBC feature.
Do you need help understanding your cash flow? Would you like to put a plan in place to start working towards your financial goals? If so, schedule a free intro call today.