What is Cash Flow?
Today we will discuss cash flow. Before we do that we need to review your spending plan. Your spending plan has two main parts: income and expenses. We do break them down in the spending plan, but let’s keep it simple today. Cash flow can be positive or negative. Positive cash flow means that you have more income than expenses. This is a very good thing. Negative cash flow means that you have more expenses than income. This is not good at all. So what can I do if I have positive cash flow and what do I need to do if I have negative cash flow?
Negative Cash Flow
There are two main things that need to be done separately or together to overcome negative cash flow: increase your income or cut expenses. Increasing your income can sometimes be a hard one. Your time is limited, but here are a couple of ways to be able to increase your income.
- Gain more education. This can be certifications, higher education, seminars, industry associations or any other way to gain additional industry education. This will allow you to be more expert in your field or acquire new skills. You can either get a raise, promotion or take a higher paying position with another company.
- Start a home based business. There are lots of scams about starting a home based business, but it can be done. It is so easy to start your own website or blog these days, that anyone can start one. It won’t be easy and it will take time. One of the best examples is a friend of ours that started a blog that was her hobby. Now look at what is has turned into: Cute Girls Hairstyles
The other obvious way is to cut your expenses. I don’t want to focus on that today, but you can always go to the Savings principle in this website for ideas.
Positive Cash Flow
This is the part I really wanted to talk about today. This is the fun part. It may take some time to get to this point, but all that hard work will pay off. There are four main things you can do with your positive cash flow.
1. Savings – Remember you need to have a rainy day fund and an emergency fund. These two have saved my life at times. I wouldn’t forget about these ones at all.
2. Retirement – I know that this may seem a long way off. If you are not prepared it may seem sooner than it is. Interesting article from Yahoo Finance about Generation X and retirement that shows how important it is not to forget about retirement. Some may say they will rely on social security, but here is an article from the New York Times about the depletion of social security. I would not rely on others and create a plan to be totally self-reliant. Anything beyond that is a bonus for you.
3. Debt Elimination – Debt is an ugly thing. You not only have to pay the debt back, but you have to pay interest on what you borrowed. Depending on the interest rate that can be a lot of money.
4. Plan a fun trip – I know that this goes against the three above, but I feel it is necessary. I have a friend that is taking their family to Disneyland with this extra money. They aren’t going every weekend, but this is the first trip for them to Disneyland. Imagine the excitement as those kids walk down Main Street and eat a Corn Dog from the stand by the First Aid Station. You can tell what I like. That memory will definitely be with all of them for a long time. Sometimes we need to get away from all the savings and have a good time.
Remember to always have fun as you become prepared for life.
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