Cashflow: The things that you should know

 

Before I talk about cashflow let me share with you some ideas I just read(this is the opinion of some  other people) about why some European countries are stuck ending into this bailout or a government debt help from bankruptcy.

[caption id="attachment_1291" align="alignleft" width="266"] source: http://toolkit.smallbiz.nsw.gov.au[/caption]

The problem seen as the reason behind the troubles in Europe is spending. One article I read says that because of the high cost of living in European countries and the high taxes impose to cover the past generations' social security benefits, the present generation now has to work so hard just only to live a life above poverty line. Even if one employee has a high per hour rate such would just go to taxes to pay for the past generations benefits. And because of high employment cost companies has to raise prices of their goods to recover such high cost of employment and the other taxes it has to pay. Basic services and goods are priced so high to recover cost and at the same time the people availing of such services are already running out of cash to pay for such services because a huge portion of their big salary actually already go to taxes.

Another article mentioned that due to inflexible union contracts many companies are forced to foil thus contributing to the unemployment rate and at the same time this unemployed people have debts to pay and since they have no money to pay they default and it just goes into a domino effect that the final result is a country going bankrupt and the entire European union is stuck into this problem.

Now why is Cashflow is so important?

Again before we answer that question let us first understand what CASHFLOW is?

Simply defined cashflow is the flow of cash. It is how money go through one's business or finances and where it get spent. With that definition in mind there are two important things you got to know: Cash Inflow and Cash outflow.

Cash inflows are your cash sources. It could be your salary, your profit from stock investment or real estate sale, your bonus, extra income from sideline work, gifts, commission, tax refund, etc. It is the cash you are actually putting in. Cash outflow is where you let go of your cash you are holding. It could be your spending, amortization payments, emergencies, contributions, lost money, etc.

Now looking back on the story why Europe has this bailout you now know why. They have poor cashflow. People are paying too much taxes and paying high cost of living but their inflow is way to small to even breakeven.

Remember the saying "Your huge salary or earnings is not your wealth but rather it is what you keep". Lots of honchos and rich kiddos you see in the TV or magazines might look rich. Sporting new cars every week, having trips every other month, and others and at some point you will just learn in the news that they filed for bankruptcy or even worse committed suicide because of the humiliation of not being able to pay their debt and their bankruptcy attorney after making a debt management plan.

[caption id="attachment_1296" align="aligncenter" width="375"] source: http://www.investopedia.com[/caption]

The fact that you are reading my blog means that you have made the decision that you will make your finances  better. You are determined that you will be financially sound than the rest. Thus after getting out of debt my advice to you is to watch your cashflow.

Remember "it is what you keep" that counts but it doesn't mean you will deprive yourself of the good things in life. This is just temporary. Before thinking of where will you spend your paycheck, first set aside money for your emergencies, investment, and retirement. Again I say that you don't have to put huge amounts at this time. Start small until you get comfortable with it and after a while add a few more until you develop the habit of setting aside money first before spending it.

In a while you will notice that you have accumulated such amount that you would look back and smile that you were once hesitant about it. By this time you can reap the hard work you did and thus from time to time you get to treat yourself and your love ones to things that back then you can't afford.

Remember these things:

• it is what you keep that counts
• your sacrifice today is temporary
• develop the habit of setting aside first before spending
• and make sure that you grow these money set aside by investing it either through bank deposit with a good interest; investment in small business; investment in stocks; or real property either through rent or price appreciation.

Let's be better and learn from what the European countries have already experience. Let's save a portion of our earnings as an individual Filipino, as a family, and as a nation. Let's spend wisely and ask our government that instead of raising taxes create more jobs so that our kababayans will have money to pay basic needs and services. And of course let us invest in our own stock market to keep the money in rather than letting it go out and better yet let the money from other countries come in and hold it here and make well use of it.