In episode 23 we discussed cash flow at the sprint distance level of training. In that episode, you learned that you shouldn’t spend more than 30% of your income on housing and you should be saving 20% of your income each month.
On this episode of Money Mile, we’re going to level up the cash flow component of your financial training plan. Listen in to learn how you can improve your cash flow with some best practices you can’t miss.
You will want to hear this episode if you are interested in…
- Spending money monthly on a depreciating asset [1:22]
- Monthly cashflow hates variability [3:48]
- The importance of cash reserves [5:55]
- Homework [9:05]
Don’t finance depreciating assets
We can all fall into the trap of making monthly payments, but the reality is that you should not be paying for something monthly that depreciates in value. People often find it easier to finance a high-end bike, phone, or car, but if you are trying to accumulate wealth your income shouldn’t be diverted to assets that decrease in value.
Pay all your bills in the first week of the month
Work towards being able to pay all of your bills in the first week of the month, that way you can live comfortably for the rest of the month without having to be concerned about how much money you need for other expenses. This practice requires a focused effort but is well worth the time spent.
Getting ahead of your bills will help you to reduce your stress level and allow you to focus your mental bandwidth on the things you enjoy. Listen to discover how you can try averaging payments out to take the edge off of higher variable expenses.
Monthly cash flow hates variability
When training for a race you probably don’t train 20 hours one week and 2 hours the next. You know that effective fitness training requires consistent effort. The same thing is true for your finances.
One of the best ways we can mitigate volatility in our cash flow is to think about things in advance. You are left hoping for the best when your expenses happen to you. However, hope is not the best financial strategy.
Maintain your cash reserves
As much as we can plan for things, there are always surprises that will pop up. This is where maintaining a cash reserve is important so your monthly structure is not derailed every time an unexpected expense appears.
Think of your cash reserves like the air in your bike tires. You need to check your air regularly and make sure you top them off if they are low.
Your cash reserves are very similar. Without an effective cash reserve, the next small bump in the road financially could be a game changer.
Listen in to learn what else you can be doing to maintain your cash reserves and improve your cash flow.
Resources & People Mentioned
- Episode 23 – Cash Flow Guardrails
- Episode 26 – Contingency Planning: The Risk Management Aspect of Your Financial Training Plan
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