What is Cash Flow?

“Making more money will not solve your problems if cash flow is your problem.” — Robert Kiyosaki

But, honestly, what is Cash Flow?

Your personal cash flow is basically your income minus your expenses over a certain period of time.  This is typically measured by a month in time.

The most essential part of achieving your financial goals is to start with cash flow.  If you want to grow your savings, start investing, or buy a home, you need to understand how much you’re spending versus how much you’re earning.

How Much You are Able to Save?

Cash flow is simply put, what you’re able to save from your income each month. If you nail down your monthly expenses and subtract them from your monthly income you will determine how much you are able to save.  This may be eye-opening for some.  Are you spending more than you make? Are you aware of how much you make each month? Are you dipping into your savings each month? Are you getting into debt? Answering these questions will help you achieve your financial goals by creating clarity on your finances. 

So Where do you go from here?

Follow the rules.  The 50-30-20 rule creates a cut-and-dry plan for you and your cash flow goals. Financial experts recommend saving at least 20% from your net income each month. Creating the habit of immediately putting 20% aside after your salary arrives will help to prevent you from spending it.  Most companies that offer direct deposit allow you to allocate a certain percentage to be deposited into a savings account during each pay period.  By opting into something automated, you no longer need to rely on manually transferring the money you owe yourself and your cash flow goals.  If you don’t plan to put this 20% in your savings account, invest it, or repay a chunk of your debt if you have any. Once you start practicing this step, it will become intuitive and easy to do! But what about the remaining 80% of the money?

Next, allocate 50% of your net income to necessities (such as rent/mortgage, utilities, transportation, or groceries). Basically, anything that’s essential for your daily life should fall into this category! Of course, it’s just a rule of thumb and it’s impossible to divide your money perfectly. What we’re trying to say is that it’s wise to squeeze the necessities into the 50%. Spending too much more than that might mean that your living standard is higher than you can afford. For example, if 45% of your net income only covers rent, you probably won’t be able to squeeze insurance, groceries, monthly bills, and payments in the remaining 5%.

You can use the remaining 30% for the fun stuff, personal expenses!  These are all the expenses that are enhancing your lifestyle. It’s your new clothes, food delivery services (is uber eats your most used app, like ours?), entertainment, or travel that fall into this category. These things are usually where you can cut your expenses the most since they typically fall under the luxury category. When you’re looking to save a downpayment for a house this is where you weigh how much certain personal expenses matter to you and where you can cut back to grow that downpayment quickly!

Looking for help?

Do you have more questions or want support in going through your expenses in order to optimize your cash flow and invest your money strategically? …Let us connect you with Cross Coastal Advisors.  Email us for an intro!

A little background on Cross Coastal Advisors

Stephen Johnson, CFP®:

A Partner at Cross Coastal Advisors, Steve has maintained an unparalleled enthusiasm and genuine passion for holistic planning and wealth accumulation for over a decade. Steve is a consummate professional who focuses on the individual needs of his clients. When you work with Steve, all of your finances are coordinated and integrated. Various strategies are designed and evaluated, allowing him to create economically efficient solutions that serve your true purpose. Steve graduated from Western New England University with a BSBA in Finance. Immediately following graduation, he knew he wanted to start his own financial practice and help others achieve financial confidence. Steve quickly moved into leadership, holding management positions of YP Unit Director, Field Director, and Managing Associate before becoming Partner. Steve made the transition to Cross Coastal Advisors with the goal of expanding his practice further.  He specializes in serving those in the medical community as well as those who own closely-held businesses. He is a firm believer that these demographics require the specialized skill set and training which he has obtained. 

John Di Ruggiero:

John partnered with Cross Coastal Advisors in 2015. After successfully growing his business at Commonwealth Financial Group in Burlington, Vermont, he decided to relocate to Boston, Massachusetts to continue the expansion of his planning practice. Currently, John leverages his extensive professional network to benefit his dynamic client base, which includes business owners, corporate executives, and individuals actively engaged in private equity, hedge funds, venture capital, real estate, and real estate private equity. He continues to demonstrate his enthusiasm for comprehensive planning and values his work implementing progressive investment and risk management strategies on behalf of his clients.

Have more questions? Contact us and let us know how we can help!