Finding Freedom With Cash Flow

Written by Ray Ong

Have you ever met someone who makes a lot of money, but doesn’t have much to show for it?

Have you ever waited in anticipation for your next pay cheque, only for it to go flying out the window paying bill after bill?

The fuel that drives financial freedom is cash flow and it’s the foundation of financial independence.

Cash flow is simple; it’s the money coming in, minus the money going out. It’s the flow of cash coming and going.

As a financial planner, people often ask me for financial advice around investments. Where should they invest their money to get a greater return? Is it the stock market, in the bank or even crypto? It’s a great question to be asking, however investing is only part of the equation. Having money coming in through investments is nothing without understanding the money going out part.

In the investment world, we know that we can’t control everything. From stock markets to property, there is always an unknown variable. Sure we can make educated decisions, but no one has a crystal ball to dictate the future of our investments.  Nothing is ever fully in our control.

However, something we can control is our spending. And if we get into the habit of managing our spending, we strengthen our cash flow.

I’ve met a lot of people with super high income that have hardly anything to show for it. At the same time I’ve come across many average income earners, living humble lifestyles that seem absolutely happy and free.

So how can we find freedom with cash flow? We need to establish clarity on our own cash flow.
Money in: income

What income do you currently have coming in through your work, business and investments? Write it down. How much do you expect to come in the next 12 months? This is the ‘money in’ component of your cash flow. Don’t forget to minus tax to understand your real income.

On the other side of the equation we have expenses, and that part is a little bit more complex.

Money out: expenses

Before reading further, if your attitude around saving money is negative or guilt ridden, it can be very difficult to grow sustainable wealth. Our heart is to replace financial fear, worry, guilt and shame with freedom. Saving shouldn’t be something that causes suffering but liberates you into freedom.

There are three key ways to look at our spending.

1. Looking backwards: conduct an audit on your spending.

You can do this simply by pulling up your bank or credit card statement and look back on the last 12 months of everything you’ve spent, splitting your expenses into categories (like food, entertainment, rent, utilities, gifts etc) so you can better understand what you spent on and how much. This is a great way to learn about your spending patterns. Some banks and credit card companies have automated apps that do this for you.

I’ve personally gone through the exercise and it’s extremely tedious… it takes a lot of willpower. In my view, it is pretty hard. The next approach is looking forward through budgeting.

2. Looking forward: estimate your spending through budgeting.

By estimating your future spending habits through budgeting, you’ll have a better understanding of your potential cash outgoings. There are plenty of budget templates on the internet as well as digital apps you can use to assist. By taking this approach, you take a forward stance on how much you’ll spend on your car, clothes, food and so forth.

The only flaw of this approach is it can be hard to be accurate. Sometimes we underestimate what we’ll spend or are not able to stick to our budget. (Pro tip: never shop when you’re hungry!)

3. Looking as you go: audit your spending in real time.

The last approach is looking at your spending habits as you go, by using an app like Pocket Book (not sponsored). These sorts of apps link to your bank account or credit card statement and categorises all your spending in real time. For every transaction, you’re asked to indicate which category the purchase goes into. These apps can be very useful but also cumbersome. They require lots of determination to keep on categorising all your transactions. I personally tried but didn’t last more than a couple of weeks.

Side tip: if you’re really struggling with spending, just cut up your credit card.

Full disclosure, I use a credit card for the convenience, the points and I have structured my finances so that it doesn’t take control of me. But maybe for you, it’s not working. The problem with the credit approach is that the money just gets lost. And I think that inherently is the biggest problem with the whole credit scene… and it’s genius from the credit card providers.

It’s that whole notion of “don’t worry about it, she’ll be right, it’ll be fine.” Pop it on the credit card, it goes, beep beep you’re fine. And it will get sorted because there’s enough income there. But the whole problem with that credit card approach is that the money is just floating around.

It’s all so fluid and there’s no real clarity around the spending because the thinking is that there’s money there so you’re fine. I know it’s quite an extreme idea, but if you’re really struggling on that spending piece, maybe it’s time to cut up your credit card. I believe the benefits you’ll get from saving more, spending less and being more in control of your cash flow far outweighs any benefit you may get from points that you accrue with the credit cards.

The final equation

From here it’s a simple equation of income expenses = cash flow position.

Hopefully you have a surplus in cash flow that you can put away for a rainy day. Your cash flow might not be as high as you’d like, so maybe you need to tighten your spending in various areas. If you tighten your spending, do it from a place of freedom. Don’t make your life miserable. Do you want to become financially independent and retire early but have a miserable life in the process? Do it from a place of freedom that is measured, responsible and comfortable.

If spending money on clothes is an area of weakness and you want to tighten this area, set yourself a budget. Maybe you normally spend $200 a month on clothes; take the next step and drop it to $150. By setting a budget, although it may seem like a restriction, there is actually freedom within the boundary. Now you’ve got a mental framework to work with. That guilt of spending too much on clothes is removed because you’re working within the boundaries of your goal – that’s happy spending!
As the famous saying goes, cash flow is king and is the best place to start building financial freedom. Get clarity on your cash flow by looking backwards, looking forwards or looking as you go. From here, you should have a clear picture of your cash flow so you can take the next step in your financial journey towards freedom.

Meet the founder: Ray Ong

Ray is a CERTIFIED FINANCIAL PLANNER® with over 15 years of experience. He has a passion for helping people of all backgrounds make smart and meaningful decisions with their money. His mission is to make these services accessible to the majority (not just the minority) — to replace the intimidation and fear of wealth management with freedom.

In his spare time Ray enjoys playing guitar, reading a good book and spending time with his wife and three kids.