Financial Literacy 101: Cash Flow Analysis
by:
Edwin Malipayon
The famous business author/investor Robert Kiyosaki always emphasize that it's imperative for a person who wants to be rich to have financial intelligence. For how will you get rich if you don't know how to manage your money? Without Financial Intelligence, getting rich would be impossible, especially so if your expenses keeps on exceeding your income.
Unknowingly in our daily routine we forget to check our expenses vis-à-vis our daily income. We forget to list all the expenses we have for the day and tend not to mind about it thinking that another payday is near. Because of such mindset we end up saving nothing and yet we still ask ourselves WHY we are not RICH.
We know what is expense right? We also know what is revenue, profit or income. We even know that expense if it exceeds our income leads to bankruptcy. Then why can't we save? Why do we still end up having problems with money? It's because we don't analyze our cash flow and we tend to disregard a very important financial rule - Expense should not exceed Income or Revenue. We also unknowingly disregard the simple financial equation: income - expense = savings. We totally disregard both and still we daydream about becoming rich.
We do not employ the very basic Cash Flow Analysis in our daily lives. That's why we are still not rich.
What a pity! But don't you worry you're not alone. There are a lot of us. I myself still forget to list all my expenses for the day and it even exceed my daily income. That's why it came to a point that I cannot cope up with my expenses anymore. You see I'm an impulsive buyer. I hastily buy things that I like without planning it first and I usually end up buying irrelevant or unnecessary things.
However, just recently I was able to get rid of it and now I'm totally conscious of what I buy and the expense that I incur everyday because I now religiously write them down. Thus, every end of the day I usually do the balancing - that's how accounting people call the summing up of the expenses and the revenues. By doing this all the time I tend to be cautious of not exceeding my daily income, which leads me to having savings daily.
In doing Cash Flow Analysis, you're making sure that your cash-out doesn't exceed your cash-in. If you do this and save up, there will be no impossibilities of getting rich. As soon as an opportunity for high yield return investment comes, you can readily use your savings to invest. This is the reason why rich people become richer. It's because they save and their savings open up new opportunities for them. Their being savings-conscious and expense-cautious made the big difference.
I have already started doing this and I am optimistic that sooner or later I'll be one of them. So dear readers, if you want to be one of them then try doing it. List all your expenses for the day and compare it with your income, make sure that you don't exceed. You must do what they call the balancing. As soon as you balance your expenses and your income then it would be easier for you to save.
Remember, savings = income - expense. However, to get rich you must prioritize savings. But how do you prioritize savings? If you are working, set aside first an amount of money from your salary and budget the remaining amount. It's that simple, by doing so, you're now sure that you did save an amount which you can use when opportunities knock.
Try it now! I know you can do it! Because if you cannot, I assure you, you'll be daydreaming for the rest of your life.
Edwin R. Malipayon
Copyright © 2007
All rights reserved
About the Author:
Edwin R. Malipayon is a Registered Electrical Engineer and a Licensed Real Estate Appraiser. He is also a Banker and presently connected with UCPB. He is a MBA graduating student in USEP. He is also Property Investment Consultant and does Real Estate Appraisal. You can email him at
happy_rem15@yahoo.com for your comments.
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