Why is understanding the use of money, credit and debt so important and why do so few grasp its importance? Failure to grasp the fundamentals of money management has serious consequences and can lead to financial ruin. Understanding and properly applying the lessons of cashflow will ensure you can lead the life you desire and leave even your children’s children an inheritance.
The number one problem in today’s generation and economy is the lack of financial literacy.
-Alan Greenspan, former Chair of the Federal Reserve of the United States
As a young man, my father taught me the importance of establishing a good credit rating if I ever intended to buy a car, acquire a home or finance “good” debt that would allow me to live more than a paycheck-to-paycheck existence. He also said, “Be your own boss and lead by example.”
However, he was never taught – and so neither was I – the importance of cashflow, and it is likely you weren’t either.
Cashflow is the life’s blood to your personal household and of businesses worldwide. You may have all the blood you need, but if it does not flow, you die; and so it is with cash. No cashflow, no exchange, no home or business.
First things, first
To begin, you must shift your money mindset. If you operate from a position of fear and bondage you most certainly will always see yourself as “poor.” Instead, shift to see yourself generous and operating from a position of financial freedom and you will think “rich.” This is an ongoing lifestyle change that may result in the most positive and empowering course correction to leaving a family legacy and can be your reality! You start with creating your detailed annual budget.
Yes, a budget, written down or stored on a spreadsheet that lists your income and expenses, and that is reviewed regularly so you can see where you are on your financial journey. If you do not know where you are, how are you going to know where you are going?
We have touched on the proper mindset, what’s next? Let’s get practical on three action items. The first and second you can do on your own, while the third typically requires some help. The results of learning these ideas it to help define and live within your means; your “living margin.”
What do you know about interest? First, do you know how to accumulate it? Second, have you learned about interest float and third, how about interest cancellation strategies, which is called debenture management?
Money is a living, breathing thing
These first two ideas are interrelated and work together. Money should never rest and always be working. If it is not working for you, it is working for the benefit of someone else.
Money wants to multiply and you can see that by having an interest-bearing saving account. Granted, the interest paid today is not what it was 20 or 30 years ago, but you can begin there. Allow your money to earn interest 24-7 and you will see that money never rests.
Second, learn to use interest floats. I learned this from my mother who showed me how to buy on credit, write a check, and debit my checking account while waiting for the billing cycle. In the meantime, my money stayed in my saving account and made me money. When the bills came due, I had accounted for all the spending from the previous month. Simple and effective, it does require financial discipline but it taught me the ethical principle of using other people’s money (OPM).
The third practice typically requires help in the timely and proper order to pay off debt such as consumer debt, student loans, mortgage debt and business debt. This involves the use of debt leverage, bank lines of credit, home equity lines of credit and more, and requires having access to financial tools which you may or may not be aware of and is an alternative way thinking about cashflow.
It has been said that they who serve the most people prosper the most. It can also be said that he or she who applies solid cashflow management strategies multiplies the desires of their heart most.
In order to grow, we must spend time with those who desire to multiply and serve, and any success will be in proportion to the actions we take, not good intentions.
The water tank analogy
Picture your cashflow as a water tank. Where is the outlet value located? If it is at the bottom, once your cash resources have reached that point you have nothing in reserve. However, if it’s midway between the top and bottom, you know you have adequate reserves to invest or in case of emergency, and it takes less to keep full and you have enough to allow your cash to flow freely for good. Change your mindset by changing the position of your outlet.
Lastly, do not confuse cashflow with better marketing or increased revenues. It certainly can be, but our focus is on empowering personal responsibility, resulting in financial freedom.
You can do this by yourself or you can choose a guide to show you the way. The opportunity to use CashFlow GPS is available to everyone, regardless if you are living paycheck to paycheck or have more money than you know what to do with. Money is rarely the problem and more money is rarely the solution.
Your invitation has arrived, how will you respond?
Geo Ropert, APR is the president of Ropert and Partners Public Relations – Marketing Communications. His firm is providing strategic public relations services to CashFlow GPS. Geo is participating in our program to gain an in-depth understanding of how cash flow can be improved. He is writing these blogs based on his personal experiences and for the benefit of those looking to “get free and stay free!”