Episode Details

Welcome back. In the last episode we explored common investment mistakes people make. It's not really essential that you listen to Part 1 before giving this one a listen, but if you haven't listened to that one yet, perhaps make that the next episode you grab. Today we're going to explore common cash flow mistakes that I see people make. I mentioned in the first episode that when I was first planning this post, I jotted down 12 ideas – financial mistakes I'd seen regularly over my 18 years as a financial planner. Last episode we covered the three that I grouped together as investment related – procrastination, being too conservative, and trying to be a share trader. In this episode I'm going to start with three more, that all have cash flow as a common theme. Hopefully you've listened to a few Financial Autonomy episodes by now, and if so you'll know that a common pre-cursor to making progress on your Financial Autonomy goal is having a good handle on your household's cash flow. How much comes in, and how much goes back out. In the Toolkit for the episode I'll make sure that our Budget Tool is included. I know the "B" word strikes fear into many, which is why I typically focus on cash flow instead. The thing is, getting on top of your Cash Flow is much easier now than it used to be. That's courtesy of internet banking. Our Budget Planner template has Expenditure first and income second, but if you want to get some quick progress, fill in the income figures as they're the easiest to get. You want the after tax number here – how much actually goes into your bank. Now go back to the top and work through your expenses, referring to your bank statements in your internet banking to get the numbers. Focus on the bills first because they are easily identifiable. For things like your phone bill, they're pretty stable month to month, so you should be able to just check a couple of months' worth and then get a good estimate of what they will cost you over the year. Bills like Electricity and Gas can vary quite a bit between summer and winter, so you might need to go back and get the whole years figures for these ones. Once you've filled in the clearly defined expenses, then go back and perhaps focus in on 2 months' worth of figures and tally up what you spend on food, clothes, and the like. Things that you will always spend money on, but for which it varies a bit, and drips out over the course of a month. I would print out the 2 months worth of bank statements and tick items off as I allocate them to a group such as food. Perhaps you could use a few different coloured highlighters – one for food, one for entertainment, etc. The end game is that once you've completed this exercise, everything you've spent money on in the past 2 months has been put into a category in your budget. So now you total up your expenses, compare that to your income, and hopefully you like the answer. If the answer is that you should be saving $x per year, reflect on whether that has been your actual experience over the past year. If not, why not? One key element of the exercise, probably the most important, is for you to see what you spend your money on, and whether that's really bringing you the greatest happiness. Is the way you are currently running your finances bringing you closer to your Financial Autonomy goal? In know that money and finances can be a point of stress in some relationships too. Perhaps going through this exercise together might help you both have a deeper conversation about where you are currently going, and whether that is taking you to the destination you both want to arrive at. So not having an understanding of your cash flow is common financial mistake number 1 this episode. Very much related to this, common mistake number 2 is spending more than you earn. You don't need the mental powers of Einstein to figure out that this can't work, yet it is an easy