Welcome to Investing for Beginners podcast this is episode 62. Tonight Andrew and I are going to continue our series on personal finance. Tonight we’re going to talk about managing personal cash flow.
Andrew why don’t you go ahead and start us off and we’ll chat a little bit between each other.
Andrew: all right let me get some wild and crazy ideas out there cool. how am I put this nicely so there is a term in the fitness world that is called F around itis and it’s made popular by a guy who runs Lean Gains site his name’s Martin Berkman and basically the whole it’s like a great blog post went viral that all those sorts of things and basically his big thing with the reason why so many people aren’t finding progress in the gym is because they’re they have this condition called F around itis.
And it’s basically because when you’re going through the gym you’re trying to do everything you can but if you don’t sit down and write things down and track it and measure and see where your progress is going. Then you don’t actually make any progress and you end up just kind of spinning your wheels.
Another business management guy’s name is Peter Drucker he has a quote and he says if you can’t measure it you can’t improve it. And so I think when we talk about personal finances and you really try to get to the bottom of figuring out how to improve how your personal finances are working because it’s all like kind of a chaotic mess.
Everybody solutions going to be kind of different and that’s why you have the personal part in personal finance. However, there is that key point that you need to be tracking something and measuring something and so I think Dave and I can throw out some ideas of how we feel about measuring the way that your money is flowing through your life.
But if you really want to make progress and improve a just to be aware of how your money situations moving this time goes on and beat to hopefully see that progress and just by measuring it and tracking it has a bi-effect of making that situation better for yourself.
I definitely have what works for me when it comes to tracking my personal finances I’m sure Dave has the system and I’m sure you take 10 people off the street and whether they’re financially whether or not I’m sure everybody else has their own situation to their own system sorry.
It’s going to be different hopefully we can just throw out some ideas and if it’s something that speaks to you then you can make it stick. But the whole point of this episode I think is that when it comes to your money you don’t want to have a frown that’s you don’t want to be just enough flailing your hands blindly you want to have a plan and you want to have measurements and you want to be tracking your progress.
I know this is not some sort of straight linear path trust me it’s not like they say success is never a straight line there’s always bumps in the road and when you look at finances I think that applies 110%. I’ve definitely seen in my own life and I’m sure other people can speak to and relate to that as well.
Just when you think you have things sore that something major always pops up around the corner but there are ways that we can still take on those obstacles and those challenges and still make progress moving forward I think the most important part of that is like what Dave says is managing your cash flow and having in my mind it’s budgeting but I think having any sort of measurement system in place is really the first and probably the most important step.
Dave: I totally agree with what Andrew was saying I think if you can’t measure what you’re trying to improve on you’re never really going to prove upon something and I really like what his reference to the fitness guru.
I think if you think about when you go to the gym and you watch people kind of work out there everybody just kind of aimlessly moves from machine to machine or from station to station and they’re not really paying attention to what they’re doing.
Yes they’re working out and yes they’re getting their heart rate up and they’re getting the blood flowing but are they really getting stronger? Yeah maybe they will be because they’re repetitively doing that but do you remember how much you bench press last week or do you remember how much you curled or whatever it is an exercise you’re doing.
And I think when you talk about managing your cash flow and yes where I am going to talk about the B-word budget when you talk about those kinds of things you have to measure what you’re doing. and I think it’s even more of a lost art now than when I was younger we used to have to balance our checkbooks gasp I know Andrew has no idea what I’m talking about.
Andrew: I just got a flashback to the 90s.
Dave: yeah exactly that used to be the thing and now people basically they either have an app on their phone and they could tell how much money they have or they just remember that they took $20 out of him and I have 426 dollars in there but I still got my rent check to go through there and just that in the other thing.
That’s really cut what a lot of people do now for their corner cool budgeting and there’s a gazillion apps out there that you can use one of my personal favorites is Mint something I’ve used for years and it works really great it’s super easy and you can either do it on your computer or you can do it on your phone and it connects to your bank accounts it updates automatically you can keep track of where your money’s going all the time which is awesome.
Another thing that I use it’s called Chronicle and it’s an app that you can set up when your bills are due so that you can kind of keep track of oh yeah I have this paycheck I have these bills I got to pay out of this paycheck and these bills I got to pay out of this paycheck and that kind of thing.
But one of the things that I think is so critical when you’re talking about budgeting is actually spending some time learning where your money’s going. We talked about cash flows and those kinds of things we’re talking about investing in companies and how important that is for those companies to manage their cash flow.
so when they make money where are they spending it where is it going how it affects to us as investors because we weren’t the cash flow to be positive enough that we’re going to get a dividend because that’s why we’re investing in a company or they can use that money to reinvest back into the company to make it better which makes the company more profitable and just kind of the circle of life of a business.
Well, your personal stuff is no different and it’s just as important to pay attention to where our money is going so that you can do the things that you want to do. So we spend a lot of our time talking about investing and I heard every day and the bank doesn’t have enough money I don’t know what I can do and it’s really hard sometimes.
I would see people to bank all the time talking about they don’t have enough money to save or they don’t have enough money to do the things that they want to do buy a car whatever it is but then you start kind of dissecting where the money actually goes.
And you find out that somebody buys a seven dollar Starbucks every single day for the month well that’s two hundred ten dollars that’s a lot of money and so maybe cutting those in half. I mean you’re going to have to make hard choices sometimes when you’re talking about these things if a is what you want and you don’t have enough money you either have two choices you either cut your expenses or you make more money and that’s really kind of what it boils down to.
But it comes back again all to whether it’s how you track what you’re spending so you have an idea of where all your money is going. Because who here raising hands all of us has had a $20 bill in their wallet and two days later you have no idea where I went?
because you spent it on stuff whether its buying a pop or going to a restaurant or going to a movie or whatever it may be you don’t have any receipts for it didn’t come out of your bank account because it already was you don’t know where went and that’s a perfect example to me of managing your cash flow not knowing where your money went.
And as investors we have to be cognizant of a business’s cash flow and what its doing and how they’re operating and it’s just as important for us to manage all that. and Andrew the king of spreadsheets I’m sure he’s got 17 different spreadsheets that calculate all the different things that he does only in that’s a only 15 okay I was off a little bit.
Those are you can use those tools to help you track your credit card spending your savings where all your personal expenses are going what your bills are.
Andrew: yeah you didn’t mention the two resources you recommend so that was meant and what was the second resource you think people can use I helped them track it.
Dave: it’s called Chronicle it’s an app that you yeah it’s a free app that you can use it you can enter your phone bill your cable bill your water bill your trash bill. You can enter all those and when the dates are when they’re due and then it’ll give you reminders to let hey this is due this day this is due this day credit cards anything you want you can enter and there’s pretty sweet.
Andrew: that’s pretty cool yeah so I I mean I guess I’ll just say what works for me just because I’ve kind of stumbled a lot when they came to like managing personal finances I’ve never really been much of a natural saver like we kind of talked about a couple weeks ago about like the the trash business that I had right and you were talking about your landscaping business and I just remember never having a pile of cash because whenever I would have it it would just somehow be spent and then my brother.
I actually had two brothers who helped me with the business I believe those by the third generations when it died so I was like thinking back on it and I was actually wasn’t the next in command so if I made that sound like it was him than my bad. but anyway my the second command brother he was always so good at saving like I remember he just had like a shoebox in his closet I had this stacks of all these singles and just able to say and there just never was me.
And so even I remember getting on the Dave Ramsey financial peace thing and they have you really try the outline and do a complete budget where you’re accounting for every single dollar and for whatever reason that never registered for me until I made okay I did it myself and made my own spreadsheet I guess just like I’ve done and I continue to do all the time.
We love to joke about it and you said something about how I have 17 spreadsheets the one I use for my budget actually does have five of the sheets inside so it’s got like five sheets business finances and stuff are in there too so it’s not just personal.
But that was the way that I found that was really helpful was and I don’t know why I think it was because the day of Ramsey thing was trying to get you to have it all done on paper and for whatever reason just what the spreadsheet is easier for me. And for me it came down to literally tracking everything but not so much it wasn’t so much like tracking my expenses so it’s not like what you were talking about Dave about like balancing the checkbook.
I don’t even like I live life on the edge so hard that I don’t even asked for receipt people ask me if I want to see I say no even if the ATM asked me if I want to see I say no because yeah that can really come back to bite me right it’s the ATM Jordan versus mine and if I don’t have a receipt what am I going to say.
But I don’t track what I spend what I track is what expenses are coming up for me and so I have that out several paychecks out and at least when I have a job. but what when I have a regular paycheck and a regular job and all those sorts of things I would space it out multiple paychecks and I would just update the balance so sometimes I would go over and that sucked and then I tend to do that a lot where I’ll go out and spend more than I wanted to.
But I’m always able to kind of rebalance it and I think by having what expenses I know are coming up in the future and being able to see that and see how much cushion I have her or how much I can move numbers around right so if if I for example know that I have a weekend trip coming up and I want to spend more than I usually spend on fun money well then then I know next time I go to the grocery store to try to cut maybe by 10 bucks for 20 bucks so I can add 10 or 10 bucks to their column.
So it’s like I definitely don’t consider myself some sort of expert and I won’t don’t want to say and make a sound like I’m like the best personal finance kind of person with the best habits and all those sorts of things and the most efficient like if I was a business maybe you wouldn’t want to invest in me. however I have found that I have been able to make progress and I think the biggest thing for me was a having those expenses all out there and it’s it makes me more cognizant of what I’m spending now.
Contrast that to maybe two years before where if I don’t I never had a spreadsheet like that then I would just spend money and feel guilty but when I have a spreadsheet where I have expenses planned out and I can adjust them then if I’m spending extra on a trip I know I already accounted for and so I don’t feel guilty about it and I tend to not go over too much that’s what I like to tell myself anyway.
But I really believe it does help to do it that way and that the other thing I would say is by far the biggest impact to me actually making progress financially from a personal finance standpoint was kind of what we preached over and over again with dollar cost averaging and I and I really believe that is I think once you set a goal and and it kind of comes to the idea.
I think Robert Kiyosaki who came up with this idea originally and he might have stolen it from someone else too but this idea of like pay yourself first and pay everybody else later so if you can really get that and why we always stress dollar cost averaging and putting that money in the brokerage account at the beginning of them of the month is because you will adjust and you’ll make the rest of the money will work out but if you never pay yourself first you’ll probably never end up paying yourself because you always be playing catch-up.
I definitely found that when I set a goal when I put money aside and I tell myself this is going to be gone no matter what then that’s how I was able to really finally look at a spreadsheet and see my net worth number actually going in the right direction rather than just staying stagnant.
Dave: yeah that is absolutely perfect and that was what I was thinking about why you were talking that the pay yourself first is so critical to what we’re talking about and I’m not sure if Robert was the first one to say it or not but I know that’s where I read it first and it was kind of eye-opening for me.
Because I was always kind of a budgeter and a planner and one of the things that’s on a bank all the time was people would say oh I don’t have any money to do this because after I pay all my bills then I don’t have any money and my comeback to them always was well do you plant do you budget in paying yourself first and they just kind of blink and look at me like what.
And I would say to them well if this is something you’re serious about then you need to make you need to figure out a way to do this and yes not always going to be something you could do immediately. But if it’s important to you you’ll figure out a way to do it whether it’s getting another job or whether it’s getting a raise what you’re doing or figuring out how to cut some expenses so that you can do those things.
But yeah it’s absolutely important and I agree with what and saying I didn’t start seeing my net worth start going somewhere until I started doing that I just when I sat down and made my budget after I read that book I thought well I got to pay myself first and so every month that was the first thing I did was I just started setting up automatic payments coming out of my checking account into my savings account and I called them payments they’re not really payments or transfers.
I’ve considered them payments because to me owes an expense is something I was budgeting and planning to do and by doing that I’m forcing myself basically tripping tricking myself into thinking that I’m sitting saving money when I really am.
but I’m in my head thinking it’s like a phone bill it’s something else I got to pay and if that’s what you got to do to work out that these are all things that you can do to help manage your cash flow and that’s really what we’re talking about if you’re managing the cash flow you’re managing paying yourself first that is such a brilliant idea and I’m really glad that Andrew brought that up tonight because I think that’s something that we really would want to pass along to you guys.
And I think it could be so helpful to you going forward with what you’re trying to do and I can’t really think of anything else that I would want to say beyond what Andrew said about the managing your cash flow and adding to what you’re already trying to do and paying yourself first. That’s got to be the numero uno, number one.
Andrew: I think we do Robert Kiyosaki at least a book reference write the book you’re talking about was Rich Day, Poor Dad.
Dave: yeah yep yeah
Andrew: that was definitely the first book on Finance I ever read I remember reading a long time ago when I was young so it’s definitely something that anybody can get through so that’s a great book.
Take what we talked about and just try it out see if anything happened like worse thing is you try the track you try to put yourself first pay yourself first you treat it as an expense.
I like what how you mentioned that day because I as I look back when I first started doing that and I can go back in my memory and think about times that were like super tough and then times or money was really flowing and like those months are just a wash because well when times are really tough I just figure it out and had to do weird things with the budget or make extra money here there whatever.
I remember riding the bus before like how did those times were tough and I have other times where there’s lots of money and like I should be paying down more debt right or saving more investing more and and they ends up being the wash again because I just go out and I spend too much of it.
What I’m trying to say with that is having that reasonable goal and having it as something that’s attainable but also brings you progress will help you whether you’re in the time of prosperity or a time of struggle and you will figure out a way to make that work and so make that priority number numero uno and just let us challenge you to try to do that and see how looking back a year two years five years from now how you actually Wow I really didn’t make progress because I just put that first and everything else kind of fell into place.
I think if there’s ever an action plan and the time to take action that’s right after you finish listening this go and pick a number stick to that number and make that a part of your expenses.
Alright folks will that is going to wrap up our discussion on managing your personal cash flow I hope you found some good in what we were talking about hopefully you found some useful tips and you were inspired to go out and budget.
Get better at what you’re trying to do that’s what we’re all trying to do Andrew and I are by no means personal experts at this but we have learned a trick or two along the way and hopefully we can help inspire you to become a little better at this remember we’re trying to save for our future and this is one of the areas that you need to start with is learning to manage cash flow.
So without any further ado I’m going to go ahead and sign us off you guys have a great week go out and invest with a margin of safety emphasis on the safety and we’ll talk to you guys next week.
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