RebelCapitalist: Financial Information for the Rest of Us

Cash Flow is King!

Nov 30, 2008 | By: Mr_Blue | Tags: personal finance, budget, cash flow

Cash flow is king in the business world and it definitely applies to our households as well. Cash flow means cash flowing in and cash flowing out. Good businesses manage cash flow diligently, particularly in bad economic times. Obviously, we want positive cash flow (cash-in greater than cash-out), but there are times during a year that this may not happen. With proper budgeting there is no need to panic. Budgeting is absolutely essential to managing cash flow for us as well as businesses.

Cash flow = Cash-in – Cash-out

Positive Cash flow = Cash-in greater than Cash-out

Cash-in. Businesses have more options available to them when it comes to increasing cash-in then we do. Cash-in for us typically is our salary and wages and/or investment income. Managing cash-in for us means maintaining good employment and staying healthy. We may experience decreases to cash in because of unemployment or disability. With good planning, such as an emergency fund or disability insurance, we can even manage decreases to our cash-in

Cash-out. Managing cash-out is where we can have the greatest positive impact to our cash flow. Establishing and maintaining a monthly budget is the foundation to managing cash-out. We have to establish spending priorities. Obviously, food and shelter should be top priorities. We cannot forget about savings whether for retirement, college or in case of an emergency. What is important after that?

Some of us are carrying incredibly high credit card balances. This requires special attention to the cash-out side. The important thing to remember here is to stop using the credit card because we are only digging a deeper hole by continuing to use the toxic plastic. The other important thing to remember is that we have to pay more than the monthly minimum payment to make any dent in credit card balances.

Cash flow is king! If we master and maximize (positive) cash flow we can conquer the world or at least afford, without regrets, vacations to exotic places. We will continue to work on managing cash flow in future stories on RebelCapitalist.com.