One of the biggest differences between people who are financially successful and the vast majority of the rest of the masses of people just making it living paycheck to pay check is that financially successful people know where there money is coming from and where it is going.
The equation is simple. It looks like this:
Income – Expenses = Cash Flow
If our Expenses are greater than our Income then our cash flow will be negative and we gradually slide deeper into debt.
If our Income is bigger then we accumulate money and we have extra to save and invest toward our financial success.
Most folks have a reasonably good handle on the first part. They know they get paid on Fridays. They know they make so much an hour or so much a year.
But often that is as far as it goes.
If we are going to achieve financial success then we have to pay attention to where our money is going as well. And that is where so many of us fall short of the success with our finances that is just waiting for us to achieve.
Because that involves tracking and tracking means the “B” word: Budgeting.
Most people don’t like to budget their money because it takes work. I appreciate that. Tracking my expenses is not fun. But if we are willing to spend 8 hours a day or more working for the income in the first part of the equation doesn’t it make sense to invest some time planning the second part so that we know where our money is going?
Another reason people probably don’t bother tracking their expenditures is that they feel planning and budgeting is restricting. But the reality is that planning doesn’t stifle creativity, planning gives creativity the time and the space (and in the case of our finances, the money) to flourish.
If we want to increase our cash flow to achieve financial success we have to get a grip on our financial equation. Many folks teach that the place to focus is the back end, on our expenses. And that is a good idea. Once we start keeping track of where all our money is actually going we will likely find that there are things we are spending our money on that we can willing do without or scale back if our desire to increase our cash flow is bigger than our need for that extra trip to Starbucks or whatever.
Loads of people feel that folks are too consumer oriented and materialistic. As a result of that, often the only portion of the equation that financial experts will teach is on the budgeting front. Personally I agree that we each bear individual responsibility to use the resources that are entrusted to us well. Tracking our expenses is probably the best place to start.
However we shouldn’t neglect the rest of the equation. In addition to reducing our expenses, we can significantly improve our cash flow equation by increasing our income. Many experts don’t teach on this. Perhaps it is because they feel it will increase folk’s potential for greed. I can see that.
However the truth is money is neither good nor evil. It certainly can be used for either. Rather it is an unhealthy fixation on getting more and more money, also called the love of money, that the Bible says is the root of all evil.
That is a distinction that many are unwilling to make.
But the reality for most folks is that they will never reach their potential for financial success unless they address the income portion of the equation as well as the expense side.
And in today’s global marketplace there are far too many options for us to increase our income along side our traditional jobs if we just open our eyes and look around. There are oodles of home based businesses, network marking opportunities, and internet based business opportunities that require minimal start up costs and can be developed into extra supplemental income over time.
As an example my Gorgeous wife has a side business. She’s not raking in the big bucks, and that’s not really our goal with it. But her business did pay our mortgage for a season after the company I was working for went out of business and I lost my job. If we hadn’t looked into increasing our income side of the equation we would have been in danger of loosing our house when the financial crunch came with losing my job.
As a caution there are many unethical operators out there. Some opportunities are definitely better than others. Do your homework. Find out as much as you can about the opportunity and the company behind it before you invest your money and time in anything. There are so many phenomenal opportunities to increase your income and your cash flow that absolutely no reason to waste your time and money on a dud.
The bottom line is that in order to achieve financial success we have to understand our own cash flow equation. Money-In must be greater than Money-Out.
Getting a grip on our cash flow is the first step towards financial success.