Happiness is Cash Flow
Cash flow is about understanding where money originates, according to Brian Skrobonja, founder of wealth management firm Skrobonja Financial Group LLC. and originator of the Common Sense podcast . Further, Mr. Skrobonja states that cash flow is about strategically using money to not only live your life but to create more income sources for yourself. Essentially, when you put your focus on cash flow, it solves hundreds of other personal financial challenges, according to Mr. Skrobonja.
The confusing part about cash flow is that too few people understand what this really is. They believe that a monthly budget represents cash flow. It doesn’t. A budget is used to track expenses. It focuses on limiting expenses to stay within your means (income) in order to save money.
Cash flow is essentially the money that is moving in and out. Additionally, cash flow focuses on where your money needs to go to fulfill the long term goals that you have for your future. It allows you to direct money toward creating wealth and ultimately more income. It is a financial growth mindset. Thus, the cash flow between your current lifestyle desires and your future lifestyle requirements is the most important financial decision you can make.
The purpose of cash flow awareness is not simply to make ends meet, but rather to properly organize the flow of money, which allows you to create wealth and avoid debt.
When you think of your cash flow, break down your annual expenses into five groupings:
- Debt payments
- Tax payments
- Regular monthly expenses
- Savings and insurance transactions
- Irregular expenses throughout the year
Then list in chronological order the big-ticket items you plan to spend money on in chunks over the next five to 10 years. (This would include education, transportation, home improvements, etc.)
It is important to include the assets you plan to purchase or invest in to create more income on this list. Use debt to leverage investments by acquiring assets and grow cash flows. Do not use debt to buy things that make other people richer. These leveraged investments may be assets such as a business, rental property or some other income-producing asset you plan to acquire.
Don’t think about how you will pay for these big-ticket items, just list what they are, and then circle back later to work out the details.
Stable, reliable cash flow is the only true measure of personal financial success. Individuals cannot thrive financially, let alone feel financially secure, without positive cash flow. Cash flow is king in personal finance; cash flow should rule everything around your personal finances. Keep an eye on your cash coming in and your money going out. Keep in the forefront, cash flow provides an unvarnished glimpse into a person’s overall financial health.