Preparing

For

THE CASHFLOW CONTINUUM

“Let’s Get Started…

Lets gets started… PREPARING FOR THE CASHFLOW CONTINUUM

Your cash flow is probably your biggest, most important asset. Think about it this way. Total Annual Gross (before tax) income: Multiply by 10 years = POTENTIAL EARNINGS

$ 60,000 x10 $ 600,000

Keep 15% of $600,000 =

$ 90,000

Over 20 years keeping 15% of, say $1,200,000 = $ 180,000 This excludes any interest. As you know, simply saving your way to Financial FREEDOM is one very hard way to approach this goal, however, keeping a specific percentage of every dollar earned is important. We call this percentage “THE SLICE”. Yes, a savings plan is useful but before any savings plan is considered we suggest a spending plan. A systematic way of you controlling expenditure (rather than leaving expenses to take control). Many people use most or all of this months pay to clear last months expenses. The CASHFLOW CONTINUUM is a system will help you to take total control over the next 12 months expenses. The CASHFLOW CONTINUUM is not just about the budget. A budget is somewhat helpful in that it is a way to measure incomings and outgoings. Often though, a budget simply confirms why there is no spare money to save (an example of LOGIC BOX thinking). Fortunately, budgeting exists only on the simple first dimension of thought. There is more….

Why Do People Spend More As Their Income Rises? Why is it that those on $40,000 per annum don’t have enough money to save? Likewise those on $50,000 per annum often feel the same way. As do those on $60,000 per annum, $80,000 per annum and even many on $100,000 per annum. Well, it’s not what people earn that counts. It is what people do with what they earn and that is determined by individuals underlying habits and attitudes – always. So The Cashflow Continuum is a way of focusing on how to optimize this ongoing resource – cash flow. It is a method of searching for, identifying and getting clear about the adjustments that are necessary for you to move through your current PROGRESS BARRIERS relating to cashflow and Income Usage.

2

Lets take a few moments now to create some progress. Be prepared for your progress to come from an area that may not be obvious now….

TIP:

take your time and think about your answers – avoid the “tick box approach” of “administrating the form” or completing it as quick as you can so that you can get on to the next thing. Go with what comes to mind first but take your time and think about your answers too...

What 3 insights are obvious about your budget / cash flow? 1) 2) 3)

What 3 adjustments would improve this area? 1) 2) 3)

What 2 habits, if changed would offer the most improvement? 1) 2)

What 2 attitudes if changed would offer the most improvement? 1) 2) If this was easy to complete, good for you. The progress though will be greater for you if this was a bit challenging. Hopefully you can see from this exercise that the more you explore, the more you will discover about what you can do to improve this area. You are now probably becoming clearer about the importance of investing the time to think and focus on what lies beneath the surface. The obvious solutions to repairing / fine-tuning cash3

flow might be useful, but they are far from the only solutions. The more you think about what you can do, the more options will emerge. The usual LOGIC BOX approach to life adopted by many is of only limited use. The obvious ways of dealing with cash-flow are clearly ineffective, because most people complain of not enough money.

CONGRATULATIONS BY THE WAY… You have done it…you have started. That’s important because usually getting started is the most difficult bit - seriously! You have taken action. You are on your way to “budget success”… Before you go any further, I want you to have something… The Secret To Budgeting Success. It is not how much you earn; it is what you do with it that matters. The secret to budgeting success lies in your spending habits and attitudes. It is those drivers of expenditure (your spending personality) that you now have the opportunity to identify and address. THAT is where you can make a huge difference to your budgeting success and the most progress – taking action is the key to success: TRUST ME ON THAT! ☺ Peter Flannery

It’s Time For More Budget Success Although this is just the beginning, you already may be developing a sense of excitement about what is possible with your budget and cash-flow.

How To Discover Your Spending Personality And Take Control Remember we talked earlier that it is partly about “habits”? OK – a simple way to discover your spending personality is to just record and track your expenditure (hey, don’t make a face like that. If the wind changes you will stay looking like that!). You will be surprised what you learn – yes you will… TRUST ME ON THAT ☺ be starting to take real control…

Then you will

OK – LETS LOCK IN SOME MORE BUDGET SUCCESS

4

THE CASHFLOW CONTINUUM

budget success… guaranteed 5

THE CASHFLOW CONTINUUM – Structure

WORKING ACCOUNT

IRREGULAR EXPENDITURE ACCOUNT

REGULAR EXPENDITURE ACCOUNT

TEMPORARY SAVINGS

PERMANENT SAVINGS

“A savings plan is a good idea – so too is a spending plan”.

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How To Drive My Budget Success What works best is to start with the Spending Plan first. Then, the real trick is to divide all expenditure by behaviour. Some expenses occur day to day. Some can be structured and controlled by using an automatic payment or direct debit. Many are adhoc and these are the ones that cause most household budget / cash flow problems – you are going to take control over all of them. So, dividing expenditure by behaviour is key. That way you will easily be able to control each-and-every expenditure. That means you will soon have greater control over your budget.

These are the accounts that will make it all work.

The Spending Plan - structure WORKING ACCOUNT

-

An

account

REGULAR EXPENDITURE

-

An account for regular expenditure,

for day-to-day expenditure (usually a cheque account) for such things as groceries, petrol and out of pocket cash expenses.

for such things as mortgage repayments, monthly insurance payments and other items paid by automatic payment or direct debit. IRREGULAR EXPENDITURE

An account for irregular expenditure

-

such as holidays, clothes, car repairs, weddings and other ad hoc expenses.

The Savings Plan - structure TEMPORARY SAVINGS

Savings for periods of less than 5

-

years for such things as building emergency reserves, savings for other short term objectives. The Temporary Savings can also protect the Permanent Savings. PERMANENT SAVINGS

Savings for periods of 5 years or

-

longer for such things as building an 7

investment base or retirement savings or long term healthcare beyond age 70.

“Money and financial success comes down to cash-flow at some point. Cash-flow is key and sharpening up your budget is smart…for many, a game changer One big step toward an easier, better life.”

BONUS PLANNING TIP: Allocate Your Cash-flow Across Various Time Frames Over Your Future Life Income Usage is about establishing a proper mix between consumption and accumulation (saving and spending). It is establishing the proper benchmarks between: • How much you should consume as you go • Money required for short term emergencies • Money required for the next 5 to 10 years • The next 10 to 20 years • (Retirement (whatever that means for you) • as well as throughout retirement (including health care costs). In other words, you can achieve greater financial success overall when you allocate your cash-flow over various time frames over the rest of your life. Those who fail financially can usually point to the lack of proper cash-flow benchmarking and the wrong mix between consumption and accumulation.

Revolving Credit and Credit Cards vs Discipline, Habits, Attitudes and Structure The use of revolving credit facilities along with credit cards (e.g. visa) to save interest costs can work for some, but it seems that this arrangement is not for everyone. These types of debt arrangements do work for some but sometimes cannot compensate for repairing incorrect spending habits and helping align attitudes with big picture goals. Arrangements that don’t take into account the drivers of expenditure don’t always offer budget success. OK – back to it… 8

How To Control Cash-flow, Save More Money And Keep It Saved •

Use The Cash-flow Continuum. It is a proven system. Let the system and the underlying process do the work.

•

REVIEW the definition of Working Account, Regular Expenditure Account, Irregular Expenditure Account, Temporary Savings, Permanent Savings and familiarise yourself with these definitions.

•

Record your expenditure each day. Measure to manage (no measuring = poor management = low budget control = minimal budget success).

•

Then review every week or fortnight (depending on your preferred frequency). Monthly, for most, is too long between reviews. Analyse your underlying habits and attitudes. What are the things you are doing on a daily basis that impact upon your spending patterns? What do you notice? Write them down – they will become obvious and easy to see. They will help you to drive budget success ☺

•

Work with those underlying habits and attitudes, tweak them. Think about how you can do things a bit differently. Stay focused on the SOLUTION (don’t complain – it wastes time and energy).

•

Establish The Spending Plan. Differentiate fixed regular ongoing expenditure (paid by A/P or D/D) from discretionary adhoc expenditure ( Irregular Expenditure) and allocate into the appropriate accounts as suggested above. These “groups / behaviour breakdowns” will help you to better control those expenditures (divide and conquer – dividing by behaviour helps make them all easier to control). Use the account structure to help make it all work. That’s how the system can do the “heavy lifting” for you…helping you drive budget success. All you have to do is take action, implement, execute…do it.

•

Establish surplus dollars for savings. If there don’t seem to be any, don’t worry – the system will help you get there soon…TRUST ME ON THAT ☺

•

Divide savings between Temporary Savings and Permanent Savings. How much each way? Actually the amounts don’t matter initially as much as setting up the system and getting started. 9

•

Monitor, track and review all expenses daily over every pay period – or default to weekly review – tracking expenses daily.

Just A Bit Of Time And Effort Is All It Takes A little bit of time and effort each day is easier than a big weekly task (that may never get done anyway).

TIP:

Avoid stacking up each days receipts over a week or more.

By tracking your

expenditure each day you are more likely to succeed – WAY more likely. It may take between 1 and 12 months before feel comfortable and you are able to save at a reasonable level without feeling that your lifestyle is being compromised. Just keep going… So, it’s simple. Record expenditure daily – take control. It is not much time. Commit to it, don’t over think it…just do it.

The Power Of Daily Action Recording expenditure daily is powerful and will be highly beneficial for you. It will open up a world of information not only about your money flow but also about your underlying habits and attitudes. Your spending personality will emerge! Before too long, you will be in a strong position to take charge of expenses and move toward overall budget success…more money when it’s really needed, less anxiety and less stress. You will love the control too ☺ Just commit to recording expenditure each day and you are well on your way – remember to actually do it too!

Weekly Or Fortnightly Reviews

regular reviews and evaluations are carried out either weekly or fortnightly. Also, when recording expenditure, it is important that

When carrying out regular weekly or fortnightly evaluations, look for the expenditure drivers (i.e. your spending habits and attitudes – what patterns are becoming clear?), you will become clear about what areas of expenditure to target. Better still, you will be able to identify the underlying driver. That way you can address the “cause” rather than the “symptom”. This will help you to take more control and move you toward real budget success.

© 1998 Wise Planning. All rights reserved. The integral concepts are part of The Money M-A-T-R-I-X and Wise Asset Management and cannot be used without the written permission of Wise Planning. If you would like further information about Wise Planning Programs, other services and products, please telephone 03 375 7001, fax 03 386 0686 or email [email protected]

YOUR PROGRESS SO FAR OK – so far you have: 1) 2) 3) 4) 5)

Agreed the budget needs sorting Agreed to take action Taken action Prepared for The Cash-flow Continuum By preparing, you have identified some key insights. They will be useful.

Setting up THE CASHFLOW CONTINUUM Now it’s time for more action (and therefore more budget success)…what to do and where to find the tools that will help 1.

Complete The 12-Month Budget Projection. This is a process of thinking (not an administration event or just a form to fill out – that sounds a bit bossy, sorry!). It will help you to gain greater insight into your household needs over the next 12 months and therefore help you take more control. Don’t worry about trying to make it accurate down to the last dollar – NOT the idea. Accuracy is NOT the purpose of this exercise – your best guess is fine for now. You can always update it again at some point. What matters is that you implement The Cashflow Continuum so that you drive budget success. So, complete The 12 Month Budget Projection and continue to follow through…here is where to find it: www.crackthemoneycode.net …go to the bottom of the home page where you will see the menu. Under the heading Broken Budget? just click “download toolkit”. It’s all there waiting for you…

2.

Categorise the different types of expenditure by using The Behaviour

3.

Total each category. The Behaviour Breakdown Worksheet will automatically

4.

Open additional accounts (or use existing accounts) as to set up The Cash

Breakdown Worksheet. Simply transfer each expenditure item from your updated 12 Month Cash-flow Projection on to The Behaviour Breakdown Worksheet form by placing into the appropriate category. You will find that worksheet also in the tool kit (as per 1 above under the heading Broken Budget? just click “download toolkit”). total if you enter the amounts on screen (on your computer) whereas if you print the document (NOT recommended), you will need to use a calculator and manually add up the totals – why do it that way!? These totals will be the amounts for the automatic payments (as per # 5 below). Flow Continuum structure - The Working Account and The Regular Expenditure Account as well as The Irregular Expenditure Account. Just use ordinary bank accounts and don’t worry about bank fees. The money that you will save by setting up the structure can pay for any bank fees many times over.

© 1998 Wise Planning. All rights reserved. The integral concepts are part of The Money M-A-T-R-I-X and Wise Asset Management and cannot be used without the written permission of Wise Planning. If you would like further information about Wise Planning Programs, other services and products, please telephone 03 375 7001, fax 03 386 0686 or email [email protected]

Then there is the removal of anxiety and stress – how much is that worth to you (and your family)? The benefits of structure, process and control offset and easily outweigh bank fees. 5.

Set up automatic payments between The Working Account and the

6.

Continue (or begin) recording your expenditure each day. You can use a

Temporary Savings Account as well as between The Working Account and The Permanent Savings Account. If you are concerned that you don’t have enough money to fed the automatic payments initially just transfer or borrow 1 – 4 weeks worth of expenses and place it in the WORKING ACCOUNT. You will soon pay it back - I promise. Just follow the system (and keep the faith!) – it will work for you (not changing will only get you more of the same…) simple notebook, ledger or The Daily Expenditure Tracker in the toolkit.

Budget Success In Action You may notice for the first few days / weeks that it does take a little bit of juggling to make the system work smoothly. This is just a settling in phase. You should find however that as time goes by that this system becomes quite easy to run... simply, part of your life. Just tolerate any discomfort as “change”… you adjusting ☺

TIP: If the motivation to use The Cash-flow Continuum wanes, just set yourself some simple rewards along the way. Also bear in mind that this is about change and most people resist change. Just keep going…the system will do most of the work. You just need to drive it by recording expenditure, tracking it and each week or fortnight reassess what the latest numbers are saying to you about your spending patterns. Then think about what adjustments and tweaks will be useful. Even one or two tweaks each week adds up to a lot of money over even 12 months – not to mention 10 years! Drive home that budget success by recording and tracking your expenditure each day. Also, be determined to carry out those weekly / fortnightly updates. In other words, invest the time to identify and assess your spending patterns – they will become obvious. It may also help to total your expenditure for each weekly / fortnightly period and compare your actual expenditure with your 12 month budgeted expenditure.

The Cash-flow Continuum is a proven system. It is now yours to use so that you can drive home your budget success.

AND NOW… © 1998 Wise Planning. All rights reserved. The integral concepts are part of The Money M-A-T-R-I-X and Wise Asset Management and cannot be used without the written permission of Wise Planning. If you would like further information about Wise Planning Programs, other services and products, please telephone 03 375 7001, fax 03 386 0686 or email [email protected]

GO for it ! Cash flow n. 1. the movement of cash into and out of a business. 2. a prediction of such movement over a given period. Continuum n., pl 1. a continuous series or whole, no part of which is perceptibly different from the adjacent parts. 2. Maths. A set of elements between any two of which a third element can always be inserted: a continuum of real numbers.

“It’s not the new ideas that are troublesome, but rather, letting go of the old ones” Keynes

© 1998 Wise Planning. All rights reserved. The integral concepts are part of The Money M-A-T-R-I-X and Wise Asset Management and cannot be used without the written permission of Wise Planning. If you would like further information about Wise Planning Programs, other services and products, please telephone 03 375 7001, fax 03 386 0686 or email [email protected]