Cash is King
“Cash is king!” or so the old saying goes. Although cash is important, having consistent positive cashflow is essential as it provides the foundation for wealth creation, provides a safety net, and creates opportunities for the future.
Cashflow management is the process of tracking money coming into your pocket, vs. expenditure (general living expenses, rent/mortgage repayments, and discretionary spending, etc)
For most Australians, income generally comes from employment income. Unless you run a business or earn bonuses or commissions, over a month-to-month period this generally stays fairly constant. Discretionary spending and general living expenses on the other hand, can vary considerably month-to-month. Take for example, higher gas and electricity bills in the colder Winter months.
In our experience, managing the outflow is crucial in helping our clients achieve their goals. The four fundamental elements to this are:
- tracking and maintaining a budget;
- create structure;
- pay yourself first; and
- implementing consistency.
‘Budgeting’ is not a particularly sexy term and if you have never created a budget before, it can be a daunting experience. Having all your Uber Eats orders, multiple streaming subscriptions and online shopping on one page! Yikes!
However, it is an important first step in knowing where you are and more importantly what options you have to get you where you want to go. Furthermore, your budget should be a living document, meaning that it changes and evolves with you and your expenses.
Get-now pay-later. Tap and go. Click and collect. These are all systems designed to do one thing: make it as simple and easy as possible for you to part with your hard earned mula.
However, you can create your own internal system, which if followed accurately and consistently, will help combat these external systems.
Pay yourself first
Paying yourself first is the idea of setting aside savings before you spend the money. This is often in contrast to what most people do, spend first and save whatever is left over.
It is a simple concept in theory, but most find it difficult to implement in practise. This is where the previous two points come into play. If the budget is accurate, and you have created the structure to facilitate this, you will be able to pay yourself first.
Now that you have created the budget, created the structure to effectively pay yourself, you just have to stick with it! Nothing worse than undoing all your hard work by not being consistent.
In saying that, consistency is one of the hardest things to do. There is always something new to buy, some event to attend, some new fancy new restaurant to show off to your Tinder date.
But if you’re honest with yourself and know where your priorities are, this will be a habit your future self will be glad you had adopted. In any case, what have you got to loose?