Cash Flow & Behaviour

Think about the people you know that are good with their money and ask yourself: Do they have a better job than you? Do they earn more than you? Do they come from a wealthy family? Is their lifestyle different to yours?

The answer to the above questions might be yes, but I’ll bet it’s probably no! The most likely reason that the people you thought about are in better financial shape than you is because of their behaviour with money – their habits.

That’s because your daily habits with the money you earn is the single biggest contributor to your financial success in life.

Most people don’t have an income problem, they have a spending problem! The thing about money is that it’s not everything; it’s just a tool we can use to live the life we want. But most people aren’t living the lives they want to live simply because of how they manage their finances.

There are lots of excuses we make for ourselves for not being good with money. Things like:

  • I was never shown how to handle money in school
  • My parents weren’t good with money, therefore what chance did I have?
  • I don’t have goals (or haven’t stopped to think about what I want in life), therefore there is no need to save money or invest for the future. (I’m living in the here and now, and will worry about my finances in the future)
  • I try to save, but at the end of every month there is never anything left

Whatever the reason or cause of your current financial position, you need to take accountability for your situation, because no one else is going to! So, that means it is up to you to turn things around and make the changes needed to live your ideal life.

Let’s look at an example to work out why it’s important to take an interest in your finances.

  • A 35-year-old has been working since the age of 22, earning $55,000 per annum. They’ve earned $715,000 (before tax) in their 13 years of work. Ask yourself, if you are in this age & income bracket, what do you have to show for the money you have earned? Have you used your income to build assets and set yourself up, or have you spent it all?
  • This person works until the age of 65, and from the ages of 35-65 earns an income of $65,000 per annum. This means that they will earn $1,950,000 before they retire in 30 years (not including tax)

For most people, the process of figuring out your earnings will be similar. Your income might be higher or lower, but there’s one lesson to take away from this. You are going to earn a HUGE amount of money in your working life! The big question you need to ask yourself is; what sort of financial position will you be in after earning all that money?

If you want to do something about it and make sure you use that income to set yourself up for the future, you have to work on your habits and your behaviour with money. You have to take an active interest in it.

That’s enough info and stats for today. Now, let’s talk about what you can do to improve your habits and behaviour with your money.

  1. Get an understanding of where you spend your money
    • If you don’t know where your money goes each month, that’s the first problem that you need to address.
    • If this is you, sit down with a pen and paper and figure out your cash flow. Make a list of what comes in each month (income), what goes out (expenses), and what’s left over.
  2. Work out some goals
    • The reason most people don’t use their money effectively is because they don’t really have anything they’re working towards. They hope things will work out, and they will be able to do the things their friends do. Things like travel, save, and invest. But they haven’t committed to anything with their money, so there is no need to watch it.
    • So, sit down and work out what you want to do, buy or have in the next 1-3 years. Work out how much these goals will cost.
    • Now that you know what you want and when you want it by, divide the cost by the number of months until you would like to achieve your goal. For example; if you want to go on a snowboarding trip to NZ in 12 months, and it’s going to cost you $2,000, you will need to save at least $167 per month to achieve this goal (2,000/12=$167 per month).
  3. Cash Flow Strategy
    • Create an online savings account for your goal and name the account accordingly. Then, set up an automatic deposit of $167/month from your everyday account each month when you get paid into the new account. Then you can just sit back and watch the funds grow!
    • We can be emotional and reactive when it comes to our money, and because of that we don’t always keep the goals we set for ourselves. By taking yourself out of the equation (automatically transferring the money needed for your goal) it’s helping to ensure that your goal will be achieved.
    • After 1-2 months of depositing money into your goal account, you won’t even notice it coming off your pay anymore and you’ll learn to live without it.
    • There’s one situation where this won’t work, and that’s if you don’t have the funds available in step 2 that are needed for your goal. If you don’t, then you need to work on reducing your spending or increasing your income so that you have the money needed to put towards your goal each month.

This is just a brief overview of how important your habits with money are, and why they’re important.

As we have touched on throughout this article, over the course of your working life you are going to see a lot of money go in to and come out of your bank account. So, you need to think about what you’re going to do with that money.

To make the most of it and ensure you use it to help you live an amazing life, you need to have a purpose for your money (goals), get an understanding of where your money is going (budget), and then put in place a money strategy that is automated and easy to stick to. That way, you can’t get in the way and stuff it up!

Ryan Porter is a Wealth Coach at Catalyst Wealth Group. His mission is to help his clients achieve financial success and live their ideal life.

Disclaimer: Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.