This is not a website about making money, but about living a joyful life. Still, you need a minimum standard of living before you can be happy. So here we look at ways to increase your cashflow and wealth that is sustainable in the long term.
Measure your cashflow and wealth
What gets measured improves. At a minimum you need to track your total assets, liabilities, cash inflows and case outflows. Better if you have breakdowns for each category. Try to update this every month.
Don’t worry about finding the right format. Many free templates online are quite complicated, but you can try them if you want.
I suggest you keep it simple for a start. Get a piece of paper and write what you guess the 4 totals are. Replace those estimates with the actual number when your bank statements come in.
1. Your income
List down all your sources of income, being careful to differentiate between two main types of income: active and passive.
Active income is money that comes to you only when you have to perform some sort of action, like go to work.
Passive income will come to you without you have to do anything, like rental from a property that you have rented out, or advertising revenue from a website.
Track your monthly passive income (not active income)
Your active income pays the bills. But your passive income will free you to do the things you really want to do. This is the key figure you need to track. It’s ok if you have no passive income right now. Write down zero, then start working on increasing it.
2. Your expenses
Record the main categories of expenses that apply to you. The easiest way to do this is to key in the amount on every bill that you receive before filing or disposing of the bill. Don’t foget your car-related expenses if you have a car.
Keep a close eye on your total expenses. Whatever you do, this number should not increase. Even if you cannot reduce your cash outflow, cap it at the current level.
Track your recurring monthly expenditures
One-off expenditures are easier to control once you decide to do so. The recurring bills are what usually derail your intentions to save more and grow your wealth. Switch to a less expensive telco, subscribe to fewer paid services. Focus on bringing this figure down.
Your assets and liabilities
Don’t worry about tracking these too much. Basically assets put money in your pockets. Liabilities take money from your pockets.
Your assets and liabilities matter only because they impact your cashflow. Assets generate income and so give you a cash inflow. Liabilities turn up as expenses and form your cash outflows.
Making decisions about cashflow and wealth
Before you make any financial decision, look at this page. If the decision contributes to passive income (cash inflow) or reducing recurring monthly expenditures (cash outflow), go for it. You want every decision to widen the gap between cash inflow and outflow.
For example, you may be thinking about buying a property to rent out. First, calculate whether the net rental is positive. This is your total expected rent minus mortgage, tax, and other recurring costs like maintenance. It is a good investment only if the net rental is positive.
If the net rental is negative, then even though you receive rent and have an asset to your name, your monthly cashflow situation will be worse. Avoid this.
Start measuring your cashflow and wealth now
The coming year looks to be financially challenging for many people. Now is therefore is a good time to get control over your cashflow and wealth. So get this done, and start tracking your key numbers.
What gets measured gets done.
– Sir Ian Kennedy
I looked at my spreadsheet everyday until I got my finances under control. Now I update it just once a month. Managing my money is much easier now because I know how a decision will impact my numbers. So you may have to put in more effort in the beginning but, like all skills, it will become second nature.
10 replies on “How To Increase Your Cashflow and Wealth”
First of all I should warn you against taking advice from strangers on the internet, including myself 🙂 You may be better off hiring a professional financial planner.
I can’t give you specific investment advice as I am not trained to do so, and depending on where you live the market and legal conditions could be very different from where I am.
What I would suggest it to start keeping a spreadsheet as outlined in this post, and look at it at least once a month so that you become more aware of your financial situation. Also start researching the various investment options available to you and which your risk appetite can stomach. It’s an exciting journey and will probably take years before you settle into a comfortable investment pattern, but I’m glad I started the journey many years back and hope one day you will be too!
This post is great, but what if I don’t own any properties or bring in any passive income? My wife and I bring in about $10,000 a month income, no debt, and about $3000 monthly expensive. Sort of feel stuck and looking to invest but don’t really have any idea what or where to turn too. any thoughts or ideas? Thanks!
[…] the major sources of worry and unhappiness in most people’s lives. I learnt to manage my money, increase cashflow and wealth using a simple spreadsheet, operate on a weekly cash budget, and studied ways to create multiple sources of […]
I really liked this post. Well thought out and helpful. I’m still young and about to graduate uni so this will definitely help me!
Thanks again 😉
Thanks for all your comments! Wow you’re reading quite a few posts tonight. I’m happy that you find what I write helpful. Graduating and starting work is so exciting! I took 6-12 months to adjust to being a working adult, and almost wish I were that young again! You will have a great life if you’re already reading and planning for it by reading all this. All the best and keep in touch, let me know if I can help in any way!
@ Lance, I know how you feel about checking on investment values now… having some alcohol just before helps! 😉
Yes, how to account for place of residence is a big question mark. If I were sitting on a $3 million property that I could one day sell and use the proceeds to buy 3 smaller properties – one to live in and the other two to rent out, I would count that as an asset. I probably have strange financial ideas, and I blame, I mean thank, Robert Kiyosaki!
Glad you’re monitoring your financial statement too. And here’s to your asset and cashflow position strengthening year on year!
@ Juliet, you’re right to monitor expenses because they play such a big part in deciding how much we save, and therefore how fast our assets grow. I monitor my expenses like a hawk and I think many times before allowing an expense item to increase or worse, introducing a new expense item! I think that once you do that, your assets and liabilities will take care of themselves. So keep monitoring! Thanks for dropping by and leaving a comment.
I do monitor my expenses, but I’m not monitoring my retirement and savings ratios quite so diligently.
(Assets and liabilities also don’t feature much in my regular financial thoughts)
Mm, food for thought.
Great post! I, too, do something very similar – and follow it on a regular basis. The one I’ve probably neglected is cash flow – so it’s probably worth a review of this one. And the whole idea of passive income – is one I’m really looking at exploring more. You’ve reminded me of the importance of this here. The one thing I do different is to list my place of residence as an asset – and although we differ on how we look at this – the basic underlying principles are the same – and I also believe they are very important – the idea of measuring – to really know where we stand. Good stuff, all around Daphne! Now if I could just have the guts to check on where my retirements savings are at…after the last few months with the stock market volatility…
Thanks for saying hi! I liked your last blog post about the love of stones running in your family. I’m looking forward to the day I have enough abundance to buy diamonds without having to think twice about it! 😉
Hi Daphne, found your post on abundance and thought I’d drop by 🙂 Great info
Look forward to your updated info!
Wishing you All the Best