What did you do this weekend? Anything exciting?
Because I spent my time between meeting old friends, making new ones and doing my cash flow analysis. Which, as it happens, needs resurrecting.
You see, most people use budgeting to control their spending. My kind of budgeting is somewhat different and it is not for wimps: I use budgeting to do my cash flow analysis. Because, your cash flow is the one measure of financial health that can take you from debt to wealth; from being broke to being financially secure.
For many years now, our cash flow has fit a ‘prosperity profile’. This is the profile where monthly expenses stay constant and monthly income continuously grows.
My cash flow analysis shows that since February 2010, when my mind focused on increasing my cash flow like a sniper’s cross hair on a victim’s forehead, we have increase our regular monthly income by 60%. We have also build – through investing in businesses – a healthy monthly side hustle income.
In 7 years, our monthly cash flow has increased five-fold; yes, this is correct. This increase is a combination between increased income and no spending on debt (except mortgage). Currently, we invest an average monthly income every month.
It wasn’t always like that. Before you think of me as ‘lucky’ and/or ‘uppity’ remember that I arrived in the UK, twenty-seven years ago, with $20 in my pocket (not kidding). And I married for love!
We also have five different income streams and another one gaining momentum. This is not bad, you know. The average millionaire has seven different income streams (well, we are one short and our income streams are not that large yet.)
‘How do you know all that?’ – you may think.
I know exactly how our family finances have developed over the last seven years because I have records of everything. In fact, I could tell you how much a packet of butter used to cost on 2010 (I’ll save you; still, this is the kind of nerd that dealing with debt made me. Now, being a nerd keeps financially healthy and (relatively) prosperous.)
Okay, Maria, but why are you saying that budgeting is not for wimps? You cash flow analysis tells us that you are in great shape.
Here is the ‘not so good’ news, my friend.
Our biggest income stream is my monthly pay. As you know, trouble is brewing at my university and, in my unit, one in two jobs will be lost. While I believe that redundancy can be a wonderful opportunity, it is still a hard decision to take.
Do I think that I’ll be made redundant? Who know but probably now. What I need to decide to regain control over my life and my finances is whether I’ll be applying for voluntary severance.
If I were to decide to apply for voluntary severance, our biggest income stream will vanish.
Scary stuff. This is why budgeting is not for wimps. Let me tell you what my cash flow analysis shows.
Without my monthly salary, our monthly cash flow (assuming we maintain current level of spending) will become slightly negative. In other words, we’ll slide from a ‘prosperity’ to ‘debt’ profile. You remember, I’ve made a vow to never get in debt again, do you?
To break even, I’ll need to make between £500 and £1,000 per month (after tax).
Just here, my cash flow analysis become interesting.
The question is, would I be able to make £500 to £1,000 per month?
This, my friend, is my chance to put my money where my mouth is. I’ve written about making enough money to cover the monthly bills. It is time to try some of these for myself. I’ll keep you posted what I’ve decided.
Now, let me tell you why I thought to share the results of my cash flow analysis.
Here are the lessons:
Large cash flow is great but don’t be complaisant. Your situation can change fast and your cash flow can turn negative.
Develop and maintain many income streams. Millionaires have got this one right: the more income streams you have the less volatile your financial situation is.
Aim to develop passive income streams. We have three passive income streams (and another one developing) that must be grown.
Ensure that your income streams are matched. This is the real discovery of my cash flow analysis: our income streams are uneven with my monthly salary the largest by far. As a result, potential loss of it will shake our finances.
I haven’t made my mind up yet but my cash flow analysis shows that if I were to apply for voluntary severance, the loss of my salary will push us into negative cash flow. Put simply, this means that I’ll have to find a way to make between £500 and £1,000 per month.
I’ll have a jolly good go at putting into practice what I’ve been preaching on The Money Principle and work on increasing some of our income streams.
It should be fun. Do you what to do it with me?
Now, if you don’t believe me, here are Eminem and Royce Da 5’9 telling about resurrecting their cash flow.