Friday, February 8, 2019

Cash Flow Suffering? Roll Your Sleeves Up!

Cashflow is one of the most powerful success criteria for a company to survive and we have seen so many instances when a company struggles to stay afloat just because it couldn’t manage its’ working capital adequately. 

Cashflow is the one mighty factor why many of us are seeking so desperately for financial independence. 

Without cashflow coming in, you are basically starved off food and water and maybe more great ideas to make things work. 

You can thread your way lightly to manage your working capital adequately through your recurring monthly paycheck or with the multiple credit cards you apply for that will last you over a cycle, but in the long run, you’ve got to fix the roots of the problem. 

Let’s face it. Some months are more difficult to manage even for the most of us. 

Whenever there is an unexpected wear and tear in your apartment that you need to fix, or the visit to the doctor because your children is sick, all of them require a cash outflow that you will need to tide through the month. 

And it can be very demoralizing to see your bank account with no money left to save. 

I was hit almost with a negative month recently, and that feeling sucked. 

It feels like I didn’t have a productive month saving what is left meant for spending. 

And it simply means I didn’t do a good job forecasting my expenses. 

My negative month would go dry at certain months of the year, in particular the 3rd,6th,9th and 12th month of the year. 

his is due to expenses such as school fees, insurances and tax bills coming up which can take up quite a large chunk at one go. 

Like most people, this is on top of the recurring expenditures I have such as utilities, mortgage, TV cable, credit card bills, grocery spending, etc. 

Hello Cash! Just hold on for a day more...

Roll Up My Sleeves

What I did to negate the situations is to “pay myself first” and I’ve been doing that for a number of years successfully now. 

What this means is when I get my monthly dose of paycheck at the end of each month, I would “pay myself first” by allocating around 45% of my take home pay to fund my investment portfolio. 

This is on top of the mandatory 20% CPF savings from the government which I have no choice but to abide. 

This means barring other circumstances, I have saved around 60% to 65% from my paycheck, which makes me feel good. 

The rest of the money is meant to fund the day to day expenses which forces me to tinker through the difficult working capital puzzle at certain times. 

This allows me to force capital inject into my portfolio strategically while managing my expenses strictly based on what is only needed. 

The fruitful month usually comes 4 times a year for me, which typically tends to fall during Feb, May, Aug and Nov, and this is where I would suddenly get a huge cashflow windfall in the form of dividends. 

I usually DRIP these dividends back into the portfolio almost immediately into some other companies I am interested in so this cashflow portion quickly goes barren once again but the intention is to have an increasing portfolio base so the compounding can work its magic way up. 

Start With The Basics

There are many people who faces the same predicament as myself week in week out in seeing your cashflow goes dry during the end of the month. 

You can start by identifying the low hanging fruit then move your way up slowly. 

Reduce Your Redundant Recurring Charges

Recurring charges are one items in your to do list that you have to watch out for. 

Because recurring charges are usually small in amount due to the nature of their charges monthly, you may simply overlook it because it may seem immaterial at first sight. But they can add up over time into material amount and becomes a pest if you left it there redundantly. 

One of them is interest expense charges you have on your credit card which charges you a small absolute amount in figure. Over time, this can adds up quite a bit which eats into your cashflow. 

At one time, I was constantly being charged monthly by subscribing to a movie channel online which I had seldom use since I signed up a couple of years ago. Even though the charges were only at $9/month, and honestly it did not help my cashflow positively in anyway even if I were to remove them, this ended up to more than a couple of hundreds spreading across a number of years. 

Auto Recurring Payment is usually a Killer!

These are monies which I could channel it to a better use than simply letting it “rot” away like that. 

KonMarie – Sparking Joy 

The KonMarie method is a great way to start identifying what matters to you and what does not.

The idea of only leaving items that spark joy to your belief means you live in the world of minimalism and you are clear about what you need in life.

I've previously written an article on KonMarie here in this link.

Do a High-Level Budget 

Budgeting bores people and they are such a hassle that many tends to choose to do away without them. 

If you are one who hates to do budgeting and forecasting on your detailed expenses, have at least a high-level item details that you can reference of when you need to justify your spending at some point. 

It does not have to be specific to the details because I don’t think that will work for beginners but have a rough guide on how much you are willing to allocate to each bucket of expenses. 

For instance, I allocate myself a $100 spending budget in each of the Saturday and Sunday for a family of 4. This means that if we choose to start the day by taking a cab to a particular place and it costs $15, that leave us $85 to work on for the rest of the day to buy stuff or eat at a better dining place. If we had to eat at a better restaurant like Din Tai Fung for instance and it costs us $70, then we’d have only $30 to spend on other things. 

Constantly juggling considerations like this help to build a stronger mind to manage our expenses prudently and put us in our guard mode every time we choose to spend our money. 

Reduce Savings 

This is more applicable to folks who are more financially savvy and knows what he is doing. 

Some people, perhaps like myself, tries to save too much and as a result have a stretch month to go by once in a while. 

If you are one in this category, perhaps it is also good to slow down the pace of your savings and have them reduced so you might be able to allocate more cashflow to your more important expenses. 

The downside of doing so is that you will build your wealth at a slightly slower pace but hey life is not just about saving! 

Abandon DRIPS 

If you are at this point where your dividend income are relatively significant and play a huge part in your cashflow movement, then you might want to abandon DRIPS and instead enjoy the dividends as part of your hard work by increasing your cashflow.

Again, this is subjective from each person to the next depending on where and how you want to gear up your wealth building activities. 

Thanks for reading.

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  1. Hi B, thanks for writing this post. Enjoyed it. In fact, i found your website maybe one month plus ago and read it everyday, all the way back to your first post. Truly enjoyed it and learnt alot. thanks for writing so regularly.

    1. Hi Boonhow

      Thank you for your kind comment.

      Appreciate it a lot.

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  3. Cashflow is one of the most powerful success criteria for a company to survive.Thanks for sharing this blog.
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