How important is cash flow to you?  Do you ever make spending decisions based upon your current or future cash flow?  Heck, why should we even talk about this topic.  In my humble opinion cash flow is the basic building block for a healthy financial condition. 

How many times have you gotten towards the end of a pay cycle and had more time left until that next paycheck?  It is an ever growing problem that millions face in these difficult times.  In fact, if you listen to the news, you here about it every day.  Perhaps you have experienced this happening in your life or your families.  So what are we to do?  That seems to be the billion or trillion dollar question right now.  I wish I had an answer to what will bring this nation and world economy out of it’s recession.  However, what I can do is address how important it is to understand the basic concept of cash flow.   Once you have a better understanding you can make  your “cash flow” in your favor.  As for the economy, I will leave all of that stuff to the “minds of our time.”

Back to cash flow – this concept is talked about in many financial education books.  I imagine you could probably fill an entire section of a library with stuff written on this subject matter.  I just might write a book too, perhaps at another time, but here is my version of Cliff’s Notes.

There are only three elements to cash flow as I see it.

Income – Expenses – Time

Once you know how these three elements work in relation to one another in a positive way, you will then be able to make better financial decisions for yourself.    

This idea of cash flow can be seen as literally money flowing in and out of your life.  Think of a river and water flowing downstream, you can look at cash flow the same way.  You do something to generate an income, you make commitments for that money, and then it flows out of your hands.  Hopefully, that made sense I am no novelist by any means.  What I want for you to get out of that description is that things are happening to your financial condition along the way.  Like a river, your cash flow can flow quickly out of your life or it can trickle away a little at a time.  So what causes a river to flow?  I imagine that something has to occur and supply it more water to gain movement.  Then the river would need to have an opportunity to disperse that water to another source.  Perhaps a lake, an ocean, or another river will take that water and use it for it’s purpose.  As you probably know, if a river does not have a place to flow, then it will just back up and start to flood.  I believe the same follows suit for your cash flow.   If you have something consuming all of your income, then it becomes difficult to store up any cash.  The money just flows into and out of your life quickly.  However, if your cash flows at a slower rate then you have an opportunity to store some up when needed.  

So how does time fit into this equation?  Let’s go back to the river once again.  Usually a source of water flow for a river is rain. Yes, I was awake in science class and know other things contribute to water flow in a river, but let’s just look at this one element.  When it rains the river is supplied more water and it increases the flow of water.  The same can be seen when you increase your income and your financial condition has more money to flow.  Then again, the opposite would hold true in both conditions.  When the rain stops and the income decreases or stops both have an effect on the flow.  Time fits into the equation because it too controls the flow of the resource, whether it’s water or cash.  Long periods of drought have a negative effect on the environment.  Just as we see that long periods of reduced or no income can have the same effect on your personal financial condition.

So how do we keep the life source moving and supply our lifestyles?  That is the question that many people ponder when they lay their head on the pillow at night right before they go to sleep.  I imagine they do not compare their financial lives to a river.  However, if you look at your financial life like a healthy river then you may see that changes need to be made.  You have to look at how income, expense, and time all relate to one another.  If you use too much of your resources too quickly, then you will not have those resources down the line.  If you do not take care of your financial river, then you just may end up with a trickle of water to quench your thirst when you need it the most.  Then again, when you use your resources wisely you will have enough to take you through unexpected times of drought or unforeseen circumstances.

My wish for each of you is that you manage your resources wisely and you have much rain!!!

- Phillip