Being house rich and cash poor is absurd but, for many of us, the reality is that the end of the month means not enough cash inflow and too many outstanding expenses. Let’s face it, the costs of housing, childcare, and debt service have increased well over our take-home incomes in many cases.
This creates a negative cash flow situation. Turning a blind eye to this elephant in the room is the very reason why so many of us end up feeling stressed about our finances as we juggle the bills each month, hide from debt collectors, and erode our credit history. Here is the simple fix:
Invest in Your Financial Plan
Simply put, many Canadians do not understand the value f having a financial plan. But experience shows that those who establish and maintain a viable personal or family financial plan make smarter financial choices. Most people know a financial advisor who constantly sells them investment and insurance products, but few are familiar with a financial planner – someone who can help them build a plan to stay economically viable. It is vitally important to have a professional like this to help you develop a financial plan tailored especially for your situation.
Take Definitive Corrective Actions
Having identified and acknowledged the root causes of your cash flow problem with your financial planner’s help, it is time to take action to correct your negative cash flow situation. There may be several options for you to increase your inflow and/or decrease your outflow.
One common strategy for making these corrections is debt consolidation which leverages the equity in your home to free up the cash you are paying out on debts. Let’s say you have $100,000 in non-mortgage debt at an average rate of 20%. The estimated monthly payment on this debt would be $3,000. Consolidating this with an equity loan can run between $555 and $800. This strategy frees up $2,200 in cash per month ($26,400 per year).
Objectively Monitor and Control Financial Transactions
As you make progress, don’t allow yourself to lose sight of your financial plan and regress into a strained cash flow situation. Put a system in place to monitor each transaction, including a report of actuals against plan. Review this report regularly and make adjustments to enhance your results. Depending on your circumstances, you may need to consult with your financial planner once or twice per year.
Keeping your cash flow positive is the foundation for living a happy life and realizing your dreams. While it can be a challenge, with a few steps, you can reduce your debt and increase your income to fix your cash flow problems. A financial plan that can guide your decisions and help determine when and where to make changes so that you can develop healthier financial habits will prove invaluable. Ask me how to access the resources you need to get started!