On this Equal Pay Day, the one thing we want to talk about is cash flow.
Regardless of how much you earn, regardless of the gender pay gap, cash flow is pretty much the most important component in creating wealth and creating financial security.
There is no way around it. If you want to become wealthy or just better with your money, you need to understand what cash flow means and how to manage it.
Ask any successful investor or millionaire the question of what they think has brought them to the financial success they have today and they will all say – the key to their financial success was having a clear idea of where their money is coming from and where it is going.
Then using that knowledge, they put it their money where they want it to go.
It is a conscious and deliberate choice of creating a pool of money that can be used towards building your wealth portfolio.
“Cash management” literally means managing your cash. Taking control of it, managing it, knowing where it is coming from, where it is going and making decisions around where it should go.
There are three parts to effective cash management:
1. Know where your money is coming from – this is the easy part
2. Knowing where you want it to go – this is about setting financial goals and prioritising
3. Spending less than you make (knowing the difference between “needs and want”)
Most people who don’t have a cash flow management system in place will often find that most of their cash slips through their fingers and goes out as living expenses and lifestyle liabilities, such as a car, house, TV, etc.
So at the end of the month there is nothing left to put towards creating savings or wealth.
It does not matter how much money you earn – if you do not have a system to effectively capture and monitor where your money goes, then reaching your financial goals can be a challenge.
Over and over again I see women totally ignoring this most important component of their wealth creation.
Be clear about where you are choosing to spend your cash.
Everyone pretty much can account for the big ticket items in their life, such as the mortgage, car payments, school fees, etc.
Most are stunned by all the money that they can’t account for.
I say, the largest amount of money will disappear on the smallest of purchases.
If you wrote down the amount you spent each time you bought small things like coffee and tallied it up at the end of the year – you would be surprised that it could easily add up to over $3,000 a year…and that is just the small stuff.
By having a clear understanding of where you are spending your money, you will be able to make better choices about your cash flow.
It will also keep you from falling into the trap of emotional spending.
I recently coached a young woman. She was super organised and had kept a spending journal for a year and then set up a spending plan.
She realised that she had been blowing her hard earned income on things that did not mean much to her.
Most of it was emotional spending to make herself feel better and she had no investments to fall back on.
After having set up a clear spending plan and a financial goal, she effortlessly was able to amass a sizeable nest egg that would keep her safe in case of a rainy day.
Now that is good cash flow planning.
Why is getting clear about your cash flow so important?
If you don’t get clear about where your money is going and do it real fast you will not be able to consciously allocate money towards an effective investment plan and create the financial security we all crave and deserve.
Too many women are ending up poor in their retirement because they are stuck in “fuzzy money knowledge”.
They are failing to understand the importance of getting clear and taking action now. Don’t end up being one of these women. Get clear and do it fast.