Six ways to create positive cash flow and build wealth for your family

BY CLEVE DeSOUZA

During the COVID-19 pandemic, most of us are focused on day-to-day concerns and expenses. But if you carve a little time out to look at the bigger picture, it could pay off.

Before this happened, most of us had considered reducing household expenses. But the temptation to dine out with friends or catch the latest movie with the family was just too much. During the COVID-19 social distancing restrictions, though, many families have discovered that that they actually can do without all those optional expenses.

For example, my family spends thousands every year on gas. We believed there was no other option, as we just needed to get around. For the last several weeks, though, our fuel expense is virtually zero. And all work and meetings are being done from home virtually. Once the restrictions ease up, if my family can continue calling businesses instead of driving to them, we will improve our cash flow. Expenses are our habits and so we consider them necessary when they really are not and when situations come around like COVID-19 they quickly disappear and boost our cash flow.

Here is how it works:

Cash flow is your household income minus your expenses. A family earning $100,000 a year and spending $120,000 a year has a negative cash flow. If that same family reduces its expenses to only $80,000 a year, it has a positive cash flow. Overspending, or having a negative cash flow, equals poverty.

Cash flow is a better measure of wealth than the size of your home or number of cars parked in the driveway. A positive cash flow gives families the money to boost savings accounts, invest in start-up businesses, save for college, or crush debt.

During the current restrictions to ease the impact of COVID-19, your family likely has new insight into how to improve its cash flow position.

When the restrictions ease and businesses open again, consider asking your family to continue doing without a few things in order to improve your cash flow and build wealth.

Here are some tips for how to improve your cash flow:

Instead of going out to the movies, check to see the latest release on that streaming service you pay for every month. You might find a new favourite. Enjoy some healthy snacks at home and you will save not only money, but also calories.

Numerous websites point to the cost-savings of meal planning. Planning a week’s worth of meals at a time means making one trip to the grocery store. It is easier to avoid impulse purchases when you are not in the store facing a display of fresh bakery goods.

Take advantage of free or low-cost community events. After spending weeks stuck at home, visiting your friends and neighbours in a local park will feel as special as traveling to the city for a weekend getaway.

Pay your bills on time, every time. Over a year, even a $5 late fee adds up to $60. That is six months of Netflix. Binge watching the latest Netflix series is a lot more fun than paying late fees.

If you can, pay off your credit cards. The interest rates vary, but they all add up fast. If you owe $200 on a credit card charging 19% interest (the average rate in Canada), your minimum payment is only $15. If you never borrow another dollar on that card and keep paying the minimum payment, it will take 16 months to clear the card and you will pay $26 in interest. That is two months of Netflix.

Create a budget. One popular model is to spend about 50% of your after-tax income on what you need (housing, groceries, medicine, etc.); another 40% on what you want (entertainment, dining out); and put 20% into savings every month. If you have a plan, you are less likely to dip into savings or mindlessly spend money.

Take this time at home to consider how you can cut expenses and save money in order to create a positive cash flow and build wealth for your family.