Written By: Zach Champ
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What is cash flow? Cash flow is all the money a business brings in and makes within a period of time.
We can further classify cash flow as money coming in from operations (buying/selling a product or service), financing (business credit card or loan), or investing (stocks / cryptocurrency / etc).
In order to develop wealth, you will need to develop multiple income streams. An income stream is a manner or method by which you earn money.
There are two different categories of income, Active Income vs Passive Income
Active Income is money that is earned through a direct exchange of labor, time, effort, and resources. An example of active income is a part-time or full-time job. You show up and exchange your time (work hours) and experience in return for a paycheck.
Passive Income is similar to active income except you invest more time and energy up front to create a system or mechanism that rewards you with a continued return on your money. An example of passive income could be owning a rental property or being paid royalties on music or other creative works.
KEY PRINCIPLES OF CASH FLOW:
There are several rules I have learned over the years when it comes to dealing with cash. By following these rules constantly you can ensure that you are able to maintain and save more money. They are as follows…
1. AVOID TRADE:
Don’t trade or barter as this will cause loss of inventory and no net gain in cash flow!
2. RECEIVE FAST:
Accept various forms of payment such as cash, credit/debit, apple pay, cash app, check, etc so that you can capture sales quickly and promptly, and not lose sales due to delays in payment processing.
Think about how many times when you are selling something online or at a farmer’s market and how often people ask if you accept digital apps as forms of payment. By accepting multiple forms of payment, you can prevent the loss of a sale due to inability to capture the payment. This will increase cash flow within a business.
3. PAY SLOWLY:
When paying bills and invoices, try and delay payment until the last moment possible without suffering late fees or penalties.
For instance, if you have an invoice that is net +30 days, wait until the last 5 days of the 30-day period to close out the invoice.
This will allow you to hold on to existing cash for longer periods of time versus paying early or having auto-payments set up.
4. SELL AT THE HIGHEST PRICE YOU CAN:
Always sell at the highest possible price point that you can maintain competition with.
Never lower your prices unless you have an incredible wholesale value to begin with.
By selling at the most optimal price point you can also control and influence the market, especially in coordination with other vendors and with a little strategy you can all dictate pricing for a good/commodity/or service within a market.
5. REDUCE EXPENSES / CUT OUT UNNECESSARY DEBTS:
One of the key principles of managing cash flow effectively is reducing expenses and eliminating unnecessary debts. By doing so, you can optimize your financial situation and improve your overall financial health.
Here's a closer look at how you can achieve this:
Avoid Late Fees and Penalties: Timely payment of bills and invoices is crucial to avoid incurring late fees and penalties. Late fees can add up over time and eat into your cash flow. By staying organized and paying your obligations on time, you can save money and maintain a positive financial standing.
- Restructure Debts to Avoid Late Fees, Penalties, and Interest: If you have existing debts, explore options to restructure them in a way that minimizes additional costs. This could involve negotiating with creditors or consolidating multiple debts into a single payment. By avoiding unnecessary fees, penalties, and high-interest rates, you can reduce financial strain and preserve cash flow.
6. SAVE MONEY AS MUCH AS POSSIBLE:
Saving money is an essential aspect of effective cash flow management. It allows you to build a financial cushion and prepare for unexpected expenses or future investment opportunities.
Here are some tips to help you save money:
- Create a Budget: Establish a budget that outlines your income, expenses, and savings goals. This will help you track your spending, identify areas where you can cut back, and allocate a portion of your income towards savings.
- Automate Savings: Set up automatic transfers from your income to a dedicated savings account. By making saving a regular and consistent habit, you ensure that a portion of your income is saved before you have a chance to spend it.
- Seek Discounts and Deals: Take advantage of discounts, coupons, and promotional offers whenever possible. This could include using loyalty programs, shopping during sales, or comparing prices before making a purchase. Saving even a small percentage on each transaction can add up over time.
7. AVOID UNNECESSARY PURCHASES OR EXPENDITURES:
Practicing mindful spending is crucial for maintaining a healthy cash flow and financial stability. By avoiding unnecessary purchases and expenditures, you can allocate your resources more effectively.
Here are some strategies to help you avoid unnecessary expenses:
- Prioritize Needs over Wants: Distinguish between essential expenses and discretionary spending. Prioritize your needs, such as housing, utilities, and food, and allocate your resources accordingly. Evaluate your wants carefully and consider their long-term value before making a purchase.
- Delay Gratification: Before making a non-essential purchase, give yourself a cooling-off period. This will allow you to assess whether the purchase is truly necessary or if it can be delayed or avoided altogether. Avoid impulse buying and make informed decisions based on your financial priorities.
- Track Your Spending: Keep a record of your expenses to gain insights into your spending patterns. Use budgeting apps or spreadsheets to categorize and analyze your expenditures. This visibility will help you identify areas where you can cut back and make more conscious spending choices.
8. CONSTANT MOTION:
The principle of constant motion emphasizes the importance of actively seeking and capturing income opportunities.
Try to constantly capture income from your activities. Don’t pass up or be lazy on chasing opportunities to earn income, every dollar counts and adds up!
By staying proactive and embracing a mindset of continuous income generation, you can maximize your cash flow.
Here's how you can apply this principle:
Embrace Entrepreneurial Mindset: Adopt an entrepreneurial mindset, whether you are self-employed or working for someone else. Continuously look for ways to enhance your skills, expand your network, and identify new income streams.
Explore Side Hustles: Consider taking on side hustles or freelance work that aligns with your skills and interests. This allows you to generate additional income outside of your primary job.
Leverage Digital Platforms: Capitalize on digital platforms and online marketplaces to sell products, services, or creative works. These platforms provide access to a wide audience and can be a valuable source of income.
Networking and Collaboration: Build connections and partnerships within your industry or community. Collaborate with others to create mutually beneficial opportunities and increase your income potential.
Remember, every dollar earned contributes to your overall financial success. By embracing constant motion and actively seeking income-generating opportunities, you can maximize your cash flow and achieve your financial goals!