1st and 15th Financial Corner Feb 1, 2011
February 1, 2011
Okay, so you’ve determined your cash flow and net worth. Let’s hope they were both positive. If not, then we’ll work through it.
Regardless of whether your cash flow is positive or negative, you want to increase it. Same goes for net worth. If your net worth is negative, it is not as urgent a problem as negative cash flow. You only have a very small chance of growing net worth if your cash flow is negative, so turning cash flow positive is paramount.
For a long time, I had a negative cash flow. My problem was that I knew it was negative, but I thought avoiding the truth was better than seeing it in black and white, so I didn’t track it. That only perpetuates the problem. It is much easier to get cash flow under control if you know exactly where the money is going and how much you’re losing.
There are two ways to increase cash flow:
• Increase your income
And/or
• Reduce your expenses
It is that simple.
If you are paying $300 a month for two cars, then you’re spending $7,200 per year for them. That’s $36,000 over just five years that is not in your net worth! Poof... gone!
Conclusion
Comb through your expenses and determine which ones are worth it. Drop the ones that aren't.
Once you get your cash flow positive, you can begin or continue to build your net worth.
1st and 15th Financial Corner January 15, 2011
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