### The Spotlight on Cash Flow:
As summer ends and we gear up for back-to-school season, our household undergoes a range of financial changes. This is usually the time when my wife and I get raises, her contract gets renegotiated, and various expenses and credits impact our budget. So, it’s the perfect time to review and possibly revise our cash flow plan.
Having a budget is crucial for financial stability. If your income doesn’t exceed your expenses, you’ll never truly control your finances. Once you have your budget somewhat managed, what’s the next step? This is where your cash flow plan comes in.
A cash flow plan helps you decide where to distribute your income to achieve your goals and maximize your money’s potential. It’s all about finding ways to make your money work harder for you. Ideally, you should aim to put your money into investments that generate even more income in the future.
It’s been a while since I last updated our cash flow plan. This time, I decided to format it like the one in “Rich Dad Poor Dad.” Here’s the revised plan:
### Employment Income:
Our employment income covers everyday expenses such as utilities, credit cards, food, and gas, as well as long-term liabilities like house and car payments. Although I could make extra payments, I prefer to allocate that money towards our retirement goals, which I consider a higher priority.
### Assets:
Our assets include significant items like 403b, 401k, and IRA retirement plans, and our children’s 529 college savings fund. I fund these from our regular monthly budget instead of relying on uncertain sources like annual bonuses or tax refunds. Over the years, we’ve managed to max out our 401k and IRA plans, and our 403b is nearly there.
### Blog Income:
Recently, my blog has started generating some income. Instead of using this money to pay down long-term liabilities, I invest it in a dividend stock fund, creating another income source. You might wonder why I don’t use this income to become debt-free faster. Here’s why:
1. Our house and car loans have low fixed interest rates of 3.75% and 2.25%. The dividend stock fund not only grows like an index fund but also offers a return of 3 to 4%, offering better long-term potential.
2. Dividend stocks, being equities, have the opportunity to grow with inflation. Meanwhile, fixed-rate loans will feel like smaller payments over time due to inflation.
### Dividend Stocks and Income:
Growing our dividend stock fund is crucial. The dividends will be reinvested to buy more stocks, amplifying our purchasing power, especially with our annual profit sharing and tax returns.
### Profit Sharing and Tax Refund:
These annual income sources play multiple roles in our cash flow plan. They help purchase more dividend stocks and build our savings. Additionally, they help us pay off debt quicker, as these discretionary funds are used to reduce our liabilities.
Most of my assets are designated for retirement and won’t be accessible until I reach 59-1/2. While that’s fine for retirement, I need more income sources to bridge the gap to early retirement. Creating additional asset groups, such as real estate or another online venture, could help generate more income.
### Related Posts:
1. My “Money Design” – 2012 Update
2. My Alternative Emergency Fund Strategy and How It Works
3. Adding Your Children’s College Savings to the Budget
4. Book Review: Rich Dad Poor Dad by Robert Kiyosaki
