What Does Your Cash Flow Pattern Say About You?

What we do with our money is a reflection of our values.

Making financial decisions is easier when we have clearly defined values, principles, and goals. How money flows in your life - your cash flow pattern - might say a lot about why you are where you are, financially-speaking.

Let’s look at the typical cash flow pattern of the average American middle-class household. While reading this, if you are thinking “hey, that feels familiar,” then you are probably suffering from some of the same issues that many Americans find themselves dealing with.

First, let’s recognize several domains that your money exists within your cash flow pattern:

Income - this is what you earn.

Protection - this is your insurance portfolio.

Assets - this includes your savings, investments, retirement, real estate, and business interests.

Liabilities - this includes your debt and taxes.

Lifestyle. This is everything else you spend your money on.

Here is the TYPICAL cash flow pattern of the average American Middle-Class Family:

1. Income - What they earn

2. Lifestyle - “Keeping up with the Joneses”

3. Liabilities - “Running up debt” and no tax efficiency

4. Protection - Under-protected with the basic mandated level of protection and a haphazard collection of insurances

5. Assets - The average savings rate for the bottom 90% of earners is about 4% or less

Here is the IDEAL cash flow pattern for Financially Excellent people:

1. Income - What you earn

2. Protection - Optimize and prioritize your Protection Portfolio

3. Assets - “Pay yourself first” - save and invest 20% or more of your income

4. Liabilities - Have no bad debt, properly structured mortgage, and tax efficiency

5. Budgeted Lifestyle - Live on what is left

As you can see, the IDEAL cash flow pattern is just a re-arrangement or prioritized cash flow from the normal cash flow pattern.

Getting there might not happen overnight, but its a matter of recognizing your values and goals, gaining knowledge about money and how it really works, and making progress towards being Financially Excellent.

What’s great about the ideal cash flow pattern is that once you get to “Lifestyle,” you have permission to spend your money however you want without guilt or anxiety because you took care of all the important things first.

You are properly protected, saving what you should be, have no bad debt, have manageable housing cost (mortgage or rent), so then if you want to go out to eat, take 5 vacations, golf more or buy more “cool stuff,” you can do it without blowing up your financial plan.

Traditional “old-school” budgeting fails to prioritize cash flows. It puts your cable bill on the same level of importance in your cash flow pattern as your life insurance. The truth is, there is a hierarchy of importance to cash flow items. Protection and Asset domains are more important than discretionary spending.

So, evaluate your own cash flow pattern. How are you doing? Are you average? Don’t be average! Be Financially Excellent!

I’m here to help you on your path to becoming financially excellent with customized 1:1 coaching. Interested?