Hands up if you want to spend your life in comfort, not worrying about how to pay your bills, being able to take the trips overseas, new cars, and then finally a comfortable retirement. My hand just went up, and I bet yours did too. So how is that going? Is it easy, hard or somewhere in between? For most of my clients, the answer would probably be somewhere in between. They do OK, but when we first met most of them would tell you that they could have been in a better position. And the one major reason as to why they feel they could be better off? Spending. Pure and simple. They may not get themselves into trouble with their spending, but they also aren't getting where they want to go by their spending. So you guessed it... Managing your cash flow is the first step we all should take if we aspire to wealth, or the ideal lifestyle or a comfortable life, whatever we want to term the life we really want to be living.
So its all budgeting, spending plans and 2 minute noodles? Well, no. If I could have a dollar for every time a client's eyes glassed over when we discussed how they spend their money, followed by the obligatory ' No, we are on top of that' I could be truly comfortable. You see, that 'no, we are top of that', is really a 'move on nothing to see here' throwaway line as people assume the conversation will turn to budgets, cutting back expenses and keeping complex spreadsheets with every single expenditure listed on it. Just typing that made me shudder, and I deal with money day in and day out. No one wants that. I have not met one person that that works for, if they are not already keeping a budget. It’s not to say it can't work or won't work, it’s just that for most people that do not keep a budget now, they never will.
So, if we use the analogy from the last blog, how do we want to use our time? Do we want to continually be owing others our time, our efforts? Or do we want to be in control of our time and being able to allocate it more effectively to doing the things that are important in your life? You see most people won't win the lottery, get a huge and unexpected inheritance or stumble onto the next Google to invest in. So if we are going to make better use of our time we have to learn to control our money and not have our money control us. So can this be done in a way can work for most people? Absolutely.
You see the key for most people to managing their money is structure. That is what we all lack. No one taught us in school about all this financial stuff. Sure we know what a mortgage is, and we know about interest rates, but do people really tell us the best way to manage our income and expenses? No. We have to find out for ourselves, and for most of us it means our income goes to one account, and from there we might pay off the credit card, some bills come out from that account or the credit card, the mortgage is debited and we might take some cash out when we go out. Clear as mud? What we need is structured cash flow management that takes all the confusion out of it.
Essentially what you need to do is turn that one income account, into a number of accounts or buckets, separate from the others. From here you can allocate expenses to each bucket according to what they are. So in one bucket you may have your fixed expenses, the mortgage, insurance, power etc. The next may be variable expenses like groceries, going out etc and finally you bucket your savings, because who doesn't want that holiday, or retirement or new car? So now you’ve taken all the guess work out of paying your bills. The buckets are automated so you don't even need to think about it on a daily basis. You know how much you can spend on going out and food each week as that is what is in the bucket, and finally you are saving. There isn't too much more to worry about on a day to day basis because the system is set. Every few months you need to review what the expenses are for to ensure you are getting the best deal and to re balance the ins and outs, but guess what.... we just got you on track with no budget, no spreadsheets. The best bit to me is the simple reality of the system. If your fixed expenses are x amount and you only have y amount, there is no hiding from the fact that you need to make changes. If you have z amount extra each month after expenses, then you know that is a saving for tomorrow.
Simplicity is beautiful. For most of us, this is the one area of our life we can control. We don't get to control if markets go up, or what legislation will be tomorrow. So why don't we take control of it?
If you want to have a chat about how you can take control of your cash flow, why don't you book in a quick chat with Robert @ https://calendly.com/robert-watson/15min.
The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.