You may think or have heard the mantra “cash is king” but I have news for you.
Cash flow is king.
For a business to succeed, understanding your cash flow is essential. The same premise applies to your household finances.
Simply put, cash flow is the movement (i.e., flow) of money into and out of your possession.
Positive cash flow is very desirable. It means more money is flowing in than out. That money coming in can be used wisely for various wealth-building purposes, like investing.
Negative cash flow is not desirable. That means more cash is leaving your hands than coming in. It won’t take many days, weeks or months to not have enough cash to see if a business is going to fail. Suppliers and vendors start demanding their money. The same could be said for your household finances.
With negative cash flow, over time, you simply can’t pay your bills or finance your needs indefinitely. The cash must be in your account, ready to spend or save or invest.
This is where the process of cash flow planning and forecasting come in. It’s about making sure you know what money is coming in, and when. It’s also just as important to know what money is coming out, when, and to whom.
How can you generate cash flow?
There are actually many ways you can generate positive cash flow.
The easiest and most common might be from your occupation. You work, you get paid and you hopefully have some money leftover after your bills are paid.
Rental income is another way to achieve positive cash flow. This of course assumes your debt or other expenses associated with your rental properties are consistently less than your rental income.
There is also cash flow that can be earned from your stock portfolio or investments in general. This is one of our favourite methods; the method authors of this site have employed for many years.
The costs of poor cash flow management
Whether you make $50,000, $75,000 or$1000,000 per year, prudently managing your cash flow is probably the most important thing you can ever do.
In a world where marketing and consumer pressures are everywhere, it’s more important than ever to master this essential life skill.
To keep pace with others, you may feel compelled to own the latest technology, new vehicles, bigger homes, and pay for personal services related to health, home and general happiness.
Purchasing anything with your cash flow can be great, but, you probably can’t do it all.
Just like there are constant tradeoffs for your time and energy every day, the same will apply to your money. You’ll need to make decisions about where and how you want to spend your money. Cash flow management will help you do that. That’s important, but the consequences of not doing it well can be severe.
Beyond acute or chronic stress, other negative consequences that may come from not managing your cash flow. Those consequences can be detrimental to your personal well-being, your relationships and much more. In addition to the immediate stressors that a lack of cash flow can cause, you may also be damaging your chances to realize any longer term goals when it comes to how you may want to spend your time or your money. Instead of enjoying semi-retirement or working on your own terms, you could be forced to work much longer than you anticipated to make ends meet. Instead of providing for your kids’ education, to fund a big travel goal, or even get that newer car, those aspirations will remain tirelessly out of reach.
Ultimately, your day-to-day decisions about what you spend your money on, can make or break you.
In future posts, we’ll share why so many people get cash flow management wrong. We’ll highlight what you can do to avoid the costly financial mistakes of others, and we’ll share some tips on how to save and spend money on the things you value.
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24 thoughts on “Cash FLOW is King”
I will be most interested to follow your new venture. Content that interests me most would be content that deals with retirement: things to consider, cautions, tips.
Thanks for stopping by Jo! We will be filling up the “retirement” section of the site with the best content possible! What are some of your key questions about retirement?
Key question for our household: 1) How to decumulate assets to create as tax-efficient retirement income stream as possible, from multiple account types (RRSP, TFSA, Taxable account, 1 small employer pension, CPP & OAS @ 66, now 64/65). Wish to leave an estate for 3 adult children.
2) Is there a ‘calculator’ that a non-tech person could access to ‘play with’ the figures to inform us about Question 1?
Great questions PJ. Unfortunately, there are very few free calculators out there that are comprehensive, but this one is one of the better ones (https://perc.morneaushepell.com/). Financial coaches/advisors have access to “pro” calculators, but you are looking at paying in the thousands. We are working on something to help solve these issues, stay tuned!
Great first article gentlemen. Looking forward to following the new site. I to am interested in articles on retirement, more specifically how best to draw down a couple’s RRSP/TFSA/non-registeted portfolio in their 60’s when they have defined benefit pension plans.
Good luck with the site.
That’s really great feedback Rod, thanks! We will be putting together some case studies with scenarios similar to what you mentioned in coming posts. Keep the ideas coming!
Interested in knowing about generating income from my stocks.
That’s interesting input for sure Sal. Anything in particular? Are you looking for income-oriented stocks or just how to strategically thinking about draw down your portfolio over time to earn income from your stocks or ETFs?
Hi. I would like to see articles that educate on canada specific investment options like RESP, TFSA, RRSP etc. I am a new immigrant in my 40s with virtually very less retirement savings. I know I am late in this game but I have to start somewhere and I am confused what should be done first that save tax and also build my portfolio for better cash flow and better retirement life. Thank you.
That’s great input Snehal. Don’t be discouraged, we all have to start somewhere.
We’ll consider adding to our menu of posts over time by giving folks the rundown on those 3 major registered accounts: RESP, TFSA, RRSP. We can likely highlight the pros and cons of each. I will add that to our to-do pile 🙂
Perhaps an approach you may wish to consider is as follows:
Develop two model scenarios a Low-Risk Model Portfolio and a Long-Term Hold Portfolio.
The Low-Risk Model Portfolio would be one that replaces GIC’s (which are dismal to say the least). This portfolio would have an aim to beat the current level of inflation, be as secure as possible, and leave the investor with a gain of 2-3%.
The Long-Term Hold Portfolio would focus on secure holdings / blue chip corporations and focus on dividends, stocks, bonds, ETF’s and mutual funds. The rate of return goal would be 3-7% above inflation.
Both models would have an initial investment amount of $100k. The portfolios would be reviewed/adjusted on a quarterly basis or sooner if necessary.
The portfolios would be based on actual research and results but it would have to be clearly outlined that they are provided for information/education purposes only and are hypothetical.
Great to hear from you John and we like your thinking.
I think we’ll have a few to share and show the yield/payouts as well over time to show what investors might consider for draw downs as well.
Lots to consider to your point since this site is really designed for general awareness and education purposes.
We’d like to think we can predict the future!
Thanks for your suggestion to act on.
I would like to see more about investing.
Anything in particular Cassandra?
I would like a almost like “for dummies” instruction and introduction to investing because I just dont understand. I have seen so much conflicting information.
Very fair Monica.
We hope to write a step-by-step guide to investing as we get more content on the site.
Are there particular subjects you want to know more about? Do tell?!
I do have a couple specific questions about this… How do I put money into a TFSA, open a brokerage account (or decided which company to open with), Decide which stocks to choose etc…
Great idea for a post, we will get something together.
At a high level though, you choose a discount brokerage as you mentioned, they will have options for RRSP/TFSAs etc. Once your TFSA is open, you transfer money into the account (make sure you have the contribution room available to avoid penalties). Once the account is funded, you can buy/sell stock/ETFs as you wish! Here is a post that may help in building a portfolio:
Any more cash flow articles coming soon? Would like to see how to forecast and such.
Thanks for your comment, anything in particular you are looking for? Do share 🙂
When we do accumulate some extra cash in our portfolio where is the best place to store it.
We believe the following order is best for most Canadians: max out TFSA, then max out RRSP, then if both TFSA and RRSP are maxed, consider taxable investing via non-registered.
The things you find out as life moves forward. Using taxable investing via non-registered would have made a lot more sense years ago in order to use up all the capital losses that I am still carrying forward. But it’s never too late and that is the direction I plan to take. Looking forward to your info on retirement as I am near.
Thanks very much Vicky – yes – we all live and learn a bit!
Never too late!
How close are you to retirement, or semi-retirement?