The Perfect Equation
Right out of the gate every consultant knows that personal financial planning begins by ensuring the amount of money coming in exceeds the amount being spent. When developing a wealth strategy or a success formula, this ratio becomes the benchmark.
Although this article is based upon personal financial management, entrepreneurs know that these principles can be applied to their businesses as well.
1. Increase cash flow
2. Debt elimination
3. Build wealth
The Growth Concept
Why did corporate America decide somewhere in the last decade that they could fix the cash flow ratio by cutting expenses as opposed to increasing revenue? Growth in business allows for more employees. Stripping the workforce makes expansion impossible and increases the workload on the remaining employees.
From the perspective of home economics, if I increase the flow of cash into the equation, budget items like entertainment and vacations become features of a more exciting lifestyle. The increase in cash flow can be used to leverage more free time by hiring domestic services.
Entrepreneurs use this personal financial education to grow their businesses by hiring people. Higher profits allow business owners to outsource or directly hire people. As more of the day to day activity is offloaded, more time becomes available to pursue other interests; they discover lifestyle by design.
Muck and Mire
Many personal financial services companies exist to help people reduce debt. When we think of debt as a necessary component of our plan we have to ask ourselves, ‘Will this debt produce an asset or a liability?’
Every dollar and every day spent in debt affects how much longer we have to grow before we decide to retire. Debt reduction is like bandaging a bigger problem.
Wealthy people don’t incur losses by paying interest on debts that negatively impact personal financial planning. They give money away because it does help by reducing their taxes and reinforcing the economy in which they live.
Debt reduction is not the same as debt elimination. By eliminating debt, the increase of cash flow allows people to build wealth.
Gathering, Building and Maintaining
It’s possible to increase cash flow, eliminate all your debts and still have nothing to show for it at the end of your days.
Building wealth that endures serves our descendants as well as our world. Great men and women who leave a legacy do so because their vision, or mission in life was greater than the attainment of wealth and prosperity.
This is simply another financial principle. Although the objective is to become wealthy, there is always a reason, a purpose behind it.
That reason can be as shallow as wanting to live poolside in the lap of luxury for the rest of our lives, or deeply involved in alleviating world hunger.
An individual’s personal mission usually includes what they want to leave behind for their family. We know as finite beings that we can’t “Take it with us” which is why personal financial planning also touches the lives of those closest to us.