Which Of The Following Employees Is Most Likely To Have A Blue Motivational Value System?

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Over the past year and a half, news headlines often have raised alarm about how small businesses have struggled to remain financially stable. Many such businesses have endured a significant drop in revenue since the Covid-19 pandemic began, which has hampered their ability to pay both employees and suppliers. In many cases, the federal government’s Paycheck Protection Program served as a last-resort resource for providing the cash flow necessary to keep these small, local businesses afloat.

Even non-business owners can recognize and appreciate the vital role that cash flow plays in keeping a small business operating. Yet, cash flow management and planning isn’t a financial task that only applies to people trying to sell a product or service. The relationship between cash inflows and outflows is an equally important dynamic within our own personal lives and household budgets.

The Limits of a Personal Budget Without a Cash Flow Strategy

All types of people can benefit from viewing their money through the lens of total cash flow—recent graduates, single individuals, married couples, retirees. For many people, this process may start with a budget, some of which will be highly organized and detailed. Even the most impressive budget is limited, though, if those numbers can’t translate into an overall strategy that yields at least some positive cash flow each week, month or year.

A thoughtful, customized budget may help set people on a path to pursuing certain financial goals, such as saving for a down payment, college or retirement. But the ways in which cash moves into and out of accounts—including unexpected expenses and salary increases or bonuses—eventually will determine how successful someone is in achieving their goals.

Many elements of personal cash flow management may seem straightforward to an adult who has generated income, paid bills and made purchasing decisions year after year.

Yet, keeping up with cash flow has arguably become more complex, if not more challenging, in recent decades. In 2021, it’s hard for many people to envision our past economy, in which so many transactions relied almost solely on cash—actual dollar bills transferred from one person’s wallet to a business’s cash register.

Financial Technology’s Mixed Impact on Cash Flow Management

Technology and finance industry “innovations” now have created myriad ways for people to purchase the goods and services they need in life. Fintech has moved into the mainstream. Some people almost exclusively use credit cards to make purchases. Smartphones enable us to access these credit accounts without actually pulling out a plastic card.

Others prefer debit cards, which offer the benefit of a more direct connection to the cash available in someone’s bank account at a specific point in time. People also may pull directly from these bank accounts when they send mobile payments via apps such as Venmo and PayPal.

As with much new technology, these new tools for managing cash flow can prove both a blessing and a curse. They may force people to be realistic and thoughtful about their financial circumstances, habits and preferences. However, companies in the financial industry create new products and services to benefit their bottom line.

One side effect of this dynamic is that new tools will not serve all customers equally. People with financial resources and strong financial knowledge may have the access and savvy to embrace these tools only when they work to their advantage. Others with fewer resources or less experience within the financial system may become vulnerable to costs or limitations that erode the technology’s benefit.

When you’re ready to look at where and how the cash is flowing within your personal budget, here are five ways to implement a personal cash flow management strategy.

1. With a Positive Cash Flow, Use Fintech Where It Helps

How does the intersection between cash flow and financial technology look in practice? People who have consistently positive cash flow may opt for credit card purchases over cash purchases. So long as the funds are available to pay off a credit card balance every month, using credit can offer a more easily tracked spending history, generate rewards from credit card companies and eliminate the risks associated with carrying cash.

A sizable checking or savings account balance also can enable someone to set up automatic bill payment for important recurring expenses, such as rent, utilities and even investment contributions. This form of financial automation removes the burden of remembering to pay bills from the individual, without worrying that they will overdraw their cash accounts.

Finally, positive cash flow creates a buffer when purchase timing doesn’t align perfectly with the arrival of a biweekly or monthly paycheck. Credit cards can make pulling the trigger on a large, nondiscretionary expense easier (flights for that bachelorette party, for example), especially when that purchase won’t be “consumed” until a later date. Different payment options and new apps can provide clear logistical benefits for people who fall into this group of financial consumers.

2. Keep Things Simple

Simplicity may be the key to cash flow management for most people. The reality is that many people struggle with cash flow management, often through no fault of their own. For some, the quest for consistently positive cash flow is a never-ending struggle. Understandably, people regularly search for that one new tool or service that will make this part of life easier.

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Different payment options, along with other shiny financial bells and whistles, can, in some cases, do more harm than good. Often, the key to effective cash flow management rests in minimizing complexity and distractions. For example, someone who chases credit card rewards without the supporting funds would be better off using cash or a debit card. A person who has a hard time declining an invitation to an expensive event will be more likely to avoid debt if they make payments based on their current bank account balances.

This side of cash flow management is frustrating, stressful and often unfair. Even for people in this position, though, making the best possible cash flow decisions under these circumstances can open up new opportunities before long.

3. Embrace Cash Flow Management’s Less Tangible Benefits

As a topic or focal point, cash flow is not among the most glamorous aspects of personal finance. It’s not public-facing like a home purchase or long-planned vacation may be. It also doesn’t generate the adrenaline rush that may come from a stock market investment.

But these accomplishments and these moments aren’t sustainable or repeatable without positive cash flow. Positive cash flow gives you options in life, and it allows for a quick response or solution when life doesn’t go exactly your way.

These cash flow benefits can lean toward the more emotional and psychological aspects of money, which is challenging for some people to embrace. Money management can be time-consuming and energy-draining, so many people rely on highly specific targets as they pursue their definition of financial success.

For example, an article suggesting saving a certain dollar amount each month may resonate more than advice to save “merely” for flexibility in life. Likewise, a financial role model who suggests limiting certain types of spending to an exact amount feels more tangible than having extra cash simply for unexpected opportunities.

4. Use Cash Flow to Move Beyond Essential and Habitual Spending

Personal finance doesn’t always require tangible, concrete goals. Once a person’s cash inflows and outflows enable them to keep the lights on and put food on the table, spending and savings decisions can take on a different form. From here, positive cash flow provides the breathing room to consider what else may be possible with money.

One common form that this perspective takes involves spending decisions. When someone has discretionary cash each month, they have the ability to think through what they may like to spend that money on. This is different from funding essential expenses, but it’s also a departure from habitual expenses (such as too much takeout) that may not add much value to life on a regular basis.

Thoughtful discretionary spending can lead to purchases that may legitimately make you happier. And, in time, this new approach may also enable you to identify ways in which you spend your money that you would prefer to shift toward these more valuable uses. Without realizing it, positive cash flow has made you a better spender, in the sense that your purchases more closely reflect who you are and what you want out of life.

This mental shift is a gateway to cash flow decisions that impact life in much more significant ways, particularly pertaining to higher-dollar, longer-term objectives. Positive cash flow doesn’t need to mean more spa days or drinks with friends (although those can be great). Instead, a person may choose to allocate that cash flow to paying off debt or investing for a use that may not arise until much later in life, such as retirement or a child’s college education.

These much-discussed personal finance goals often are stand-alone savings targets, regardless of how they impact cash flow month in and month out. But positive cash flow can make them feel more attainable and create the motivation necessary to fund them consistently and without hesitation.

5. Use Cash Flow To Take Control of Your Financial Life

The idea that you need to bring in more cash than you send out won’t surprise many people. But there’s a big difference between creating a household cash flow plan and actually implementing one.

The modern financial system gives people an abundance of opportunities to send money out the door, far too often in ways that ultimately don’t benefit them. These options can push any financial reckoning down the road, which means prudent cash flow management isn’t always elevated to high-priority status.

Even so, negative cash flow can contribute to an underlying sense of doom—a realization that, at some point, this situation is going to lead to trouble.

Alternatively, regular attention to cash flow can create a feeling of ownership, and maybe even control, over the money people make and spend. The reduction in uncertainty and worry that can result has the potential to improve not only a person’s financial decisions, but the outlook that they have on life.

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Bottom Line

Small business owners obsess over cash flow in order to take care of the people who keep the business running. It’s time that more individuals do the same to take care of themselves and their loved ones.

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