One of the best pieces of financial advice I received was from my father.
My father worked in finance for many years and was a CEO of a major finance company.
He gave me the advice when I was just 18 and starting university.
It wasn’t complex advice but very true, he said: ‘budgeting is essential but cashflow is king.’
Well today I'm the branch principal of Yellow Brick Road Tamworth in rural New England and I've never forgotten that advice.
Cash flow is critical to running a household, a business, as an investor or as an individual running a large organisation. I often teach this principle to my clients.
Knowing your overall expense budget can help determine the minimum cash inflow you need stay afloat over a period of time.
However, it’s more important to understand the timing of your cash inflow as this will prioritise what it is spent on and when. Critical to the success is ensuring that the cash going out is at least matched with what is coming in, whether it’s from wages, customer receipts, well-structured borrowings or existing cash reserves. If you don't have access to the inflows at the right time, having a detailed knowledge of the outflows will become a moot point.
If you receive your wages fortnightly, pay your bills fortnightly. Similarly if you are in business and all your expenses are monthly, try to get your clients to pay this way even if this means offering a small discount to pay by a monthly retainer or consider other forms of cashflow financing.
Remember cashflow is king no matter how big or small you are and having a broker who can help match the inflows and outflows with well-structured banking products will allow the budget to be better managed, creating wealth over the long term.