FINANCESaveCommand Your Cash Flow

Command Your Cash Flow

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Here’s the good news. It’s possible to enjoy life free from those gut-wrenching, paycheck-to-paycheck challenges. It probably wasn’t money that drew you to this job: nevertheless, if managed well, your firefighting salary can enable you to both live well and achieve long-term financial success. You can exchange financial stress for financial success by taking command of your cash flow.

We’re used to hearing the term “cash flow” used in a business sense. Every public company in the United States has to file a “Statement of Cash Flow(s)” (a document detailing the amount of cash that comes into and goes out of the business) with the Securities and Exchange Commission.

Positive cash flow means there is excess cash that can be re-invested in the company or returned to shareholders. Negative cash flow, on the other hand, leads to a reduction of cash on hand or an accumulation of debt.

Your household operates in precisely the same way. If $1,000 is deposited into your checking account and you spend $900, you have positive cash flow. If you spend $1,100, you have negative cash flow. And that negative cash flow is paid for through debt – often high-interest credit cards.

Now, ask yourself this: If a business managed its cash flow the way you’re handling yours, would you want to invest in it? If the answer is no, it’s time to make some changes.

You are the Chief Financial Officer of You, Inc. and it’s time to start to take command of your cash flow and conquer your financial stress.

The basic budget equation begins with income, subtracts expenses, and leaves you with the difference – your cash flow.

Negative cash flow moves you further away from your goals, while positive cash flow moves you closer. In order to achieve that positive cash flow, you have two choices: increase your income or decrease your expenses.

Most of us choose option one. Increasing your income should make things better, but strangely, that strategy doesn’t always work. Have you ever received a raise and then watched your lifestyle demands increase to swallow it? As writer and philosopher Ben Franklin noted in his 1758 essay The Way to Wealth: “What maintains one vice, would bring up two children. You may think perhaps, that a little tea, or a little punch now and then, a diet a little more costly, clothes a little finer, and a little entertainment now and then, can be no great matter; but remember, ‘Many a little makes a mickle.’ Beware of little expenses. A small leak will sink a great ship.”

Don’t rely on increasing the income side of the equation alone to solve your financial challenges. You’ll also need to plug and patch cash flow leaks to keep your financial ship afloat.

Start with creating a budget – your financial pump panel. Your money comes in, your budget tells it where to go, and you are left with the residual. As renowned author and leadership expert John Maxwell says, “A budget is telling your money where to go instead of wondering where it went.”

Plug budget leaks by avoiding impulse spending, cutting autopilot expenses, and optimizing your significant expenses.

Amazon’s one-click purchase system, for example, makes it easy to spend, but after the fifth click of the day those purchases really start to add up. American tycoon and philanthropist Warren Buffet says one of the best pieces of advice he ever received came from Tom Murphy, former CEO of Capital Cities/ABC Inc. “Warren,” said Murphy, “You can always tell someone to go to hell tomorrow.” Likewise… that Amazon purchase can always wait another day. Pay particular attention to autopilot expenses (e.g. subscription services) and hidden fees (e.g. account fees). These budget busters are often forgotten so if they aren’t delivering value to your life, cut them out.

Lastly, optimize your largest expenses. Housing, transportation, and insurance consume most of our income. Find creative ways to reduce your costs and don’t be afraid to make drastic changes. Car payments never made anyone rich, so consider selling a vehicle. You’ll find investing that additional positive cash flow – equal to what your car payment used to be – can make a huge difference in your financial picture.

A small leak will sink a great ship.

According to Experian, the average new car payment is $554 per month. If you invested that same monthly amount from age 30 to age 65 and earned an eight percent return, you would accumulate more than $1.2 million over that 35 year period. Is having a new truck sitting in your driveway worth $1.2 million? Probably not.

Now that your cash flow leaks have been plugged, you can put your income, your most valuable asset and most powerful wealth-building tool to work.

If you are a firefighter with an income of $75,000 per year, you will earn $2.25 million over a 30-year career. If you invest just 15 percent of that, you could grow a $1.4 million nest egg.

When you create positive cash flow by spending less than you make, every incremental dollar earned can go directly towards goal accomplishment. Are you working to pay off debt? Are you planning to start a business? Are you investing for retirement? Every extra dollar earned gets you closer to your goal. Working overtime is far more enjoyable when the money gained is generating financial success instead of warding off financial distress. 

So….have we got it all figured out? Unfortunately, not quite. Even if you’ve taken steps to create positive cash flow, money stress can still occur. Sometimes we simply feel stuck. We’re earning plenty of income but going nowhere.

As motivational speaker Tony Robbins puts it, “Progress equals happiness.” If you want to remove stress and create happiness, you need to strive towards a goal.

Set SMART goals (specific, measurable, achievable, realistic and time-oriented) concerning your finances. Write them down. Put them in your notes app. Pin them to the refrigerator. Keep your goals visible and present in your mind because you’re more likely to strive towards and achieve what you see.

Remember that your goals are your best guess at your desired future. If life changes, those goals can be modified. We all know life can be uncertain, so we can’t allow our budgeting and planning to create a false sense of security. The point is to keep moving in the right direction and let your budget give you the flexibility to zig when life zags, making sure you never get knocked too far off your path to success.

Money management is stressful. If you aren’t sure where your next meal will come from, anxiety is well-founded! If your basic needs are taken care of, however, don’t allow your short-term-focused survival brain to continually override your long-term-focused analytical brain.

Every firefighter understands financial stress. You aren’t alone. Be proactive, not reactive. Create a budget, analyze your cash flow, patch the leaks, and set goals. The money stress won’t suddenly disappear: in fact, it may never entirely go away. But, by taking command over your finances, you will begin to notice that you are less anxious, more focused, and better prepared to deal with life’s uncertainties.

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