Why Cashflow is Important?

Ever heard ‘Cash is King’?
Do you agree with this? I think majority of us would agree; especially so in times like these.

Cashflow

With cost of living sky-rocketing and standard of living taking a dip just so that we can make ends meet; I am sure the average lay-man on the street is having a hard time juggling between needs and wants.

The first casualty of this ‘cash-war’ is not needs and wants; but our savings.  Think about it; the first reaction of us mere mortals is use the portion meant for savings, on the increase caused by our cost of living and the balance (if any) will be put aside for the proverbial rainy day.

Stop a second and think this through; that we respond to this inflationary pressure and not react unthinkingly. By responding, we put on our thinking caps and find ways and means to manage this cost increase. There is really no shortage of ideas on how to cut costs; from transportation to preparing the menus to shopping for clothing etc. The human mind is a wonderful thing and when need be; it can come up with the most wonderful and interesting ideas. Necessity is the mother of all inventions.

Cashflow Is King

The important thing that we must remember is that the savings habit must not be broken. Why? Because once broken, it is not that we do not have a savings habit; it is actually the opposite i.e. we have formed the spending habit. There is no fence-sitting here. It is either you are a saver or a spend-thrift.

In forming a good habit; we require decision and commitment; these are actually two sides of the same coin. Pick up any financial book; and you will see that savings will be the first rule of the financial game. Why? This is not rocket science. No savings; no seed capital. No seed capital; no investments and no protection. Without these, how about retirement years; how about medical needs; let alone leaving a legacy for our children. Follow my drift?

Hold on a minute, some of you are thinking ‘hey, I don’t need money to make money.’ I don’t disagree. The idea here is making money work for you; this is the leveraged income (or alternatively the passive income or the investment income) that we talk about. This is the residual income that we are aiming for. Why? Because with very minimal effort in managing and overseeing; we create a stream of income for our future years.

Coming back to the situation that we are now facing; the last quoted official inflation rate in Malaysia is 3.5% as at June 2011 (with a historical high of 8.5% in July 2008 and a record low of -2.4% in July 2009).

But is this true for most of us city folk? I don’t about you guys; but for me, I like the plain fried noodles with soya sauce; which used to cost RM0.60/pack before subprime became part of my vocabulary, and now I am paying RM 1.20. You do the math. Unless we live in the kampong; use leg power; plant our own vegetables and rear our own chickens; our inflationary rate is not 3.5%; let alone 2.9%!
Our inflation rate would be a function of our lifestyle. Agree?

Check-in for next week’s Part 2

Copyright © Belinda Ong, July 2011. All rights reserved.