3 tips to strengthen your cash flow
It is not how much money you make, but how much money you keep
A financial guru once told me:
“To be really rich, it’s all about cash flow.”
At first I was confused, considering my previous understanding of financial wellness is that investments are the key. Probably, I was taking it too much into context. But as years passed by and with exposure to different investors, I began to understand what he meant.
I encountered a young businessman operating in the province. He has no knowledge of investment instruments such as stocks or bonds, yet, he has accumulated assets faster than a corporate employee of the same age, with knowledge on investment jargon. How come? Well, that made me realize:
“It’s all about cash flow.”
Makes perfect sense, considering cash flow is the foundation of wealth management. The more savings you create, the more investment and insurance instruments you can buy. When you want to build a tall building, you must have a strong foundation.
You have probably heard of tips such as “Pay yourself first” or “Create a budget plan,” but here are some cash-flow tips that is not common to other financial advices.
Don’t let your income catch up with inflation.
According to historical records, our inflation averages around 5 percent a year. However, it doesn’t follow on all services and commodities. Jeepney fare, for example, in the year 1993, minimum jeepney fare has been just P1.50. Right now, it is already P8.50. Put that into the equation, that results in a 9-percent increase per year. The average salary increase of a Filipino employee has been just 5 percent. Much worse, if the company is not doing well financially, it is practically legal for them not to declare any salary increase. That means it will just be a matter of time before expenses will catch up with your income, which could result to a lifetime of debt.
Don’t tighten your belt, buy a new belt.
There is a saying that “It is not how much money you make, but how much money you keep.” It is a traditional quote that looks into one solution to manage your cash flow, that is by reducing expenses.
To some extent, this quote is applicable, however, due to inflation and increase in financial responsibility (i.e, family), you begin to look for another solution, that is by generating more income. Self-employed individuals or entrepreneurs have the big advantage over employees due to flexibility of generating income. For those individuals with employee mind-set, all they could do is update their curriculum vitae and apply to other companies. This may not be sustainable. They must engage in ideas other than “look for a higher-paying job” cycle to make it sustainable in the long run. There is no law that prohibits employees for engaging into “sidelines” as long as it doesn’t affect the quality of your work or it doesn’t have any conflict of interest with your company. Besides, the sideline that you engage into might eventually outpace the income on your employment. You’ll never know unless you try.
Don’t rely on a single source of income.
Overconfidence is one of the biggest financial mistake. Are you familiar with the terms redundancy or retrenchment? Imagine a scenario wherein you are doing very well in your job and the company appreciates all your sacrifices and contributions, yet, they gave you the news that your position is no longer required and they have to let you go. What will you do next? There is a saying “Love your job, but never love your company, because you’ll never know when they will stop loving you.” Even well-known, reputable companies change direction every now and then. Changes in direction often results to re-assignment, and worse retrenchment, letting go of the position you are currently holding on. Similar to a familiar BF/GF break-up line “It’s not you, it’s me.”
Position in the company does not guarantee financial security, and with the current economic volatility, you must set your mind that nothing is permanent. Rich people become richer because they constantly improve and adapt to any situation. The rest becomes poorer because they leave everything to chance. Which one are you?
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Jake Lingan is a Registered Financial Planner of RFP Philippines. He also holds a qualification of Certified Investment Solicitor. He is currently Unit Manager and MDRT member of one of leading insurance companies in the Philippines.
Source: http://www.businessmirror.com.ph/index.php/en/business/banking-finance/34701-3-tips-to-strengthen-your-cash-flow
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