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Conscious Cash Flow or Savings?

Call it what you want, just do it!

One of my friends—coping with two upcoming family weddings, an elderly parent’s poor health, and looming deadlines at work—said with exasperated resignation, “I’ve decided life just consists of interruptions, and I might as well get used to it.”

While her current situation is certainly above average when it comes to stress, she’s right. We tend to be surprised when our lives are interrupted, whether by illness, a major car or home repair, or even a happier event such as an engagement or a pregnancy. Yet those “interruptions” are actually part of the daily ebb and flow of life. As my friend is discovering, we are wise to learn to expect and accept them.

An important part of expecting life’s unexpected occurrences is to be prepared for them financially. The key to that preparation is having a balanced cash flow vs net worth. By balanced, I don’t mean simply not spending more than you earn. Millions of people are living paycheck to paycheck, spending every penny they make each month. That is “balanced” only in the narrowest and most literal sense of the word. In truth, it is a prescription for disaster.

When you spend as much as you earn each month, you have no margin. Any unforeseen expense—a serious illness, a major car repair, or a job layoff—creates a financial crisis. If instead, you learn to create a “conscious cash flow,” you give yourself that margin.

Having a conscious cash flow means setting aside funds for planned and unforeseen expenses. It also means allocating some amount for known future expenses, such as a down payment on a home, college funding, and retirement. The more familiar—and sometimes intimidating—word for this is “saving.”

Countless articles, books, financial institutions, and financial advisors suggest making saving a regular part of the family budget. They urge “paying yourself first.” Yet, despite the wisdom and the repetition of this advice, too many people still think of saving as what you do with the money left over after you pay all the bills.

This is backwards. Let me join the chorus and say one more time that paying yourself first is an essential element of conscious cash flow and wise budgeting. All those “interruptions” will show up in your life. It’s a question of “when,” not “if.” Planning for them financially will save you incredible amounts of hassle, stress, and money.

In today’s society, too many people carry their backup plan for emergencies in their wallets. Those unexpected expenses, they assume, can always be taken care of with a credit card. This isn’t planning, it’s wishful thinking.

It’s common for people to think they can’t afford to save because money is so tight. One way to start changing your thinking about this is to remind yourself that, if you pay for a large car repair or a medical expense with a credit card, you will have to figure out some way to pay that bill. One way or another, you will manage to fit it into your budget.

So why not figure out how to fit that payment into your budget now? Put it into savings instead of writing a check to the credit card company. The difference is that you’ll be earning interest instead of paying interest.

It takes some self-discipline and commitment to begin saving in this way. Once you get even a month or two ahead, though, you can see for yourself the value of practicing conscious cash flow. You’ll remove a significant amount of stress from your life, because when one of those “unexpected” interruptions comes along, you’ll be ready for it.

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