At the end of each month I go over our business and personal expenses looking for ways to increase the efficiency of our cash flow and current financial position. This weekend marks my son’s seventeenth birthday and the end of the first quarter of 2017. My daughter also happens to be home from college on her spring break, so I thought it would be a good idea to have a lesson in cash flow management and the value of increasing efficiency. If you focus real hard, you’ll see the eye rolls and hear their groans of disgust.
I have a friend in the industry who says there’s greater opportunity in avoiding the losses than there is in picking the winners. We all love a winner, but when it comes to personal finance and investing, picking the winners before they actually become “winners” over and over again is impossible. The securities industry doesn’t want you to know that, but that’s the reality of the managed money business. When my friend says “Avoid the losses,” he is speaking of market losses, but also of all the other losses that occur on a daily basis.
To be clear, avoiding all loss is impossible. We all need to take some risk. Sometimes risks don’t pan out. But risks should be carefully calculated.
I’m talking about losses like taxes, bank fees, insurance premiums, automated payments we forget about, and more. Some of these are big and hard to miss, but most are small. They hide in plain view. There’s a reason thieves steal small amounts from our credit and bank card accounts before they try to take everything. They know most people won’t notice.
Even though I go over my family’s expenses every month (sometimes twice), I still find unsubstantiated fees and expenses or errant transactions from time to time. Sometimes these are related to communication lapses between family members, sometimes they stem from institutions and retailers just grabbing whatever they can, hoping nobody notices. In either case, plugging these leaks is an easy way to improve your financial position. And as I said in our last post, looking at where your money goes consistently will also lead to better spending decisions.
As I went through this lesson with my kids, I told them I don’t care how much money you have, or how much you make. No one can afford to ignore to these things. I told them about an article I read that spoke of the inadvertence in some of the US shale exploration and production companies and pointed to our government as examples we’re given of the opposite. Waste and neglect leads to uncontrollable debt and crisis even when you have the means to literally, or practically print more money.
Deep down, I think lots of people know the key to improving their financial position and easing financial stress is to roll up their sleeves and make the effort to begin tracking expenses and minding all the pieces of their financial pie as a collective unit to increase efficiency. But there will always be a part of us that wants someone else to do it. There are two reasons for this.
The first is that it’s scary. We don’t want to look at the reality of our situation because it’s scary and stressful.
The second is wishful thinking. We want someone to blame if things go badly. We want to believe that some advisor/product/company has the secret formula that will make our money grow, and if we can just find it, our financial worries will be solved.
But there is no free lunch. Having been knee-deep in this for over twenty-two years now, let me assure you there is no product or advisor out there who can do it all for you. And you should be very wary of anyone that tells you they can. You need to engage in the process of taking care of your own money, or you can bet others will, and they won’t be looking out for your interests. You benefit when you take a step back to look at your big picture, and then zeroing in on the places where you might be able to increase the efficiency of your cash flow and financial position.
In a time when obscene consumption, carelessness, and waste abound, we’d all do well to bring our focus to increasing efficiency. There will come a time when we have no choice.