{"id":1596,"date":"2008-02-05T05:00:24","date_gmt":"2008-02-05T13:00:24","guid":{"rendered":"http:\/\/getrichslowly.org\/blog\/2008\/02\/05\/the-power-of-positive-cash-flow\/"},"modified":"2023-10-04T21:27:29","modified_gmt":"2023-10-05T03:27:29","slug":"the-power-of-positive-cash-flow","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/the-power-of-positive-cash-flow\/","title":{"rendered":"The power of positive cash flow"},"content":{"rendered":"
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When I lived paycheck-to-paycheck, there never seemed to be enough money to go around. I was perpetually $50 or $100 short of what I needed. Because I was spending more than I earned, I fell further behind every month. I had a negative cash flow, which led to more debt, which put me deeper in the hole.<\/p>\n
It is mathematically impossible to get ahead with a negative cash flow \u2014 in order to save money, in order to pay off debt, you must earn more than you spend. Though I understood this intellectually, it was only when I actually saw the concept applied to my own life that I appreciated the power of positive cash flow.<\/p>\n
To gain wealth, you must spend less than you earn<\/a>. This is the fundamental law of money. Framed in terms of a mathematical equation:<\/p>\n This formula tells us two things:<\/p>\n The greater the gap between earning and spending, the faster you lose (or accumulate) wealth. There are only two things you can do to increase your cash flow: spend less or earn more. (Or both!) This seems obvious, I know, but smart personal finance really is<\/em> this simple. Everything else \u2014 paying yourself first<\/a>, investing ten percent of what you make, building an emergency fund \u2014 is done in support of this fundamental law.<\/p>\n Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. \u2014 Charles Dickens, David Copperfield<\/em><\/p><\/blockquote>\n Most people can improve their cash flow right now<\/em> with minimal effort simply by spending less. If you’re looking to make a change, practice frugality: buy used instead of new, make the things you own last longer, recycle worn-out goods for other uses. Look for cheaper options on the things you buy and do every day.<\/p>\n It’s useful to change your mindset to focus on needs, not wants. Many of the things that we’ve come to view as necessities are actually luxuries. You don’t need<\/em> 180 cable channels or a Netflix subscription. You don’t need<\/em> a cell phone. People lived without these things for centuries \u2014 it’s still possible to live without them.<\/p>\n Recurring expenses can be especially insidious. Long-term contracts and installment plans often contribute heavily to negative cash flow. If you truly need to make a major purchase, save the money to pay in full. Don’t buy things you cannot afford.<\/p>\n If you can’t (or won’t) decrease your spending, then you’ll need to find ways to increase your earning. If your current job doesn’t pay well, try to find another. If you like your employer, you might work to earn a promotion or ask for a raise<\/a>. Also look for ways to make money from your hobbies. Finally, don’t forget that you can sell things you no longer want or need.<\/p>\n Related >><\/strong> Use Your Hobbies to Bring You Wealth<\/a><\/p>\n Two other skills can play crucial roles in managing your cash flow. First, you should learn to track every penny you spend<\/a>. If you don’t know how much you’re bringing in or where it’s going, you cannot know where changes need to be made. Also, many people consider a budget an important planning tool. With a budget, you can be certain that your money is being put to the best use.<\/p>\n\n
<\/span>How to Improve Your Cash Flow<\/span><\/h2>\n