Focus on Cash Flow Over Your Entire Life
If your goal is to do everything you want in life and die with at least a dollar in your bank account, or whatever amount you want to leave to your kids, then there is a simple equation that will tell you if you are on the right track.
What you have + What you make – What you spend = Cash Flow
It’s what you have plus what you make minus what you spend. Every part of your financial life must make this equation work. None of this comes from rules of thumb or guesses as to what the average person or even what your neighbor does.
Instead, your personal financial success depends on your own personal assets, income, and spending. For this reason, to have success you must focus on your own personal cash flow. This does not mean that you should focus on increasing or decreasing your current cash flow. It means you must work to make the cash flow of your entire life even out or remain positive.
Suppose you are considering making a change to your homeowner’s insurance because you feel you are paying too much. If the change you make entails reducing your insurance coverage, you should understand this could cause a huge negative cash outflow in the future should you have damage that is no longer covered due to changing your insurance.
We must make all financial decisions in the context of our financial life over time. Not just what we are seeing today.