IT's often said cash flow — far, far more than mere accounting profits — is the true lifeblood of business. Any business.
That's correct.
So, bearing that in mind, let's shift our focus from the business of, well, business, to the business of life, and look at our precious lives through the linked lenses of cash and cash flow. As we do so, three truths come into focus:
1. Because money is NOT the most important thing in life, we must NOT make the cold-blooded materialistic mistake of equating our self-worth to our net worth;
2. Yet, since our finances affect every facet of life, we should pay attention to financial planning; and
3. Our aggregate personal cash flow position is the main tool for us to nurture, build, and augment our personal financial strength, which contributes to our quality of life on Earth.
All three truths (or realisations) are glaringly obvious. Also, you might find it intriguing to learn how they intertwine with each other. To make it easier for you to track along, here are abbreviated versions of those three Ts or Truths:
T1 — SELF-WORTH SHOULD NOT BE TIED TO OUR NET WORTH
The value of a person is not a function of the number of zeroes in his or her bank account or savings and investment portfolio (SIP).
Ask yourself what you look for in a true friend, confidante, or mentor. Chances are high your answer will include traits such as kindness, honesty, loyalty, and wisdom. None of those desired characteristics involves outsized material wealth.
Even billionaires acknowledge this truth. Oprah Winfrey, whose wealth is estimated at US$3 billion, gives this advice: "Only make decisions that support your self-image, self-esteem, and self-worth."
Now consider this nugget from American author and professional speaker, Gabrielle Bernstein: "True abundance isn't based on our net worth, it's based on our self-worth."
Having perhaps helped you reassess your assumptions about wealth, do note that adhering to core financial planning principles is still useful. Here are two principles to help you along:
1. It's better to have a positive net worth (= the aggregate value of our assets minus the total value of our liabilities) than a negative one; and
2. It's wiser to accumulate productive assets that appreciate than to ratchet up liabilities on "stuff" that rusts or breaks or fades.
T2 — PAY ATTENTION TO THE DICTATES OF FINANCIAL PLANNING
Although money is not the most important thing in life, getting our financial house in order is smart because it helps us care for our family.
The three dimensions of financial planning we must address are our wealth protection, wealth accumulation, and wealth distribution needs. They're met through insurance policies, savings and investment initiatives, diversification, and by writing a will and perhaps even establishing a private trust.
Taken as a whole, these vastly different initiatives to deal with all three dimensions can be daunting. That's why those who are not inclined to go down the long and windy path of DIY financial planning will opt to work with various professionals to meet the disparate requirements of the three dimensions.
Those pros might include life and general insurance agents; bankers, brokers, real estate agents, and unit trust consultants; and lawyers or estate planners. An increasing number of Malaysians are also engaging licensed financial planners to provide overarching financial planning advice and a blueprint or map to navigate the undulating terrain.
Whichever path you opt for — DIY, fragmented, or holistic — what's important is that you use this helpful definition to clarify your thoughts and actions:
Financial planning is meeting your life goals through the proper management of your finances.
Those 17 words, strung together in this specific way, give us all an opportunity to craft unique journeys from where we are to a place (and time) of better financial health.
T3 — CASH FLOW IS SUPER-IMPORTANT
For all of us, without exception, the way we manage our cash flow determines not just personal financial success or failure, but overarching success or failure in all of life.
Consider financial author and guru Robert Kiyosaki's perspective:
"People think that working hard for money and then buying things that make them look rich will make them rich. In most cases, it doesn't. It only makes them more tired. They call it 'Keeping up with the Joneses.' And if you notice, the Joneses are exhausted."
Kiyosaki is right.
The key to a happier, more successful life is not unwisely wearing ourselves out pursuing ephemeral status or purchasing meaningless "stuff". Instead, it would be better and far less stressful to get our financial house in order by:
1. Spending less than we earn;
2. Saving and investing the difference; and
3. Doing it for a long, long time.
We've ranged far and wide today. So, I'll wrap up by telling you the way to build abiding financial strength:
Exercise delayed gratification to ensure we're cash flow positive, ideally, every month — moving forward.
If that can be done, everything else we've discussed becomes quicker and more manageable to implement.
© 2024 Rajen Devadason
Rajen Devadason, CFP, is a securities commission-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).