Friday, December 1, 2017
The Crushing Blow of Negative Cash Flow
Today is the first of the month. What that means for me is that this week I saw my bank account deplete from what I had built it up to during the course of the month. Boom, rent, boom cable, boom hydro, boom insurance. Always good times! The good thing about it is I always have extra left over after those expenses come out. That is positive cash flow. I spend less than I make and that is crucial. Despite this great accomplishment on my part, it hasn’t always been that way. I remember the days when every month was a scramble to just pay rent, let alone the bills too. Running a negative cash flow hurt me in ways you wouldn’t believe. It was a literal nightmare trying to figure out how to pay my obligations. There were many unseen effects of it as well. In today’s post, as we wrap up Cash Flow Week at Budget Boss, I will describe 10 effects of Negative Cash Flow. You might not realize what you are doing to yourself by living day to day and it can come back to haunt you.
1) You’re broke, and you might not know it
Some people have a weird conception of what it means to be broke. Me, I think I’m broke all the time. I literally feel like I never have enough. Others seem to think everything is fine when it really isn’t. If you need your next paycheque or else you won’t be able to pay your rent or mortgage, you are broke. Plain and simple. If by paying your bills you have no extra money, you are broke. Positive cash flow allows you to know exactly where you stand when it comes to your obligations. Negative cash flow clouds your money mentality to making it seem as if just getting by is good enough.
2) The bank will get you
Do you know what NSF means? I sure do! NSF means “Non-Sufficient Funds.” That means you have no money and someone tried to get paid from your account. That means you will now pay an NSF charge. So, on top of being broke, you will pay more for being broke. Ain’t that a female dog? Yes, the bank will charge you for not meeting your obligations. Even worse, you will pay costly interest if you rack up debt. This means that because of your negative cash flow, the credit card company and the bank will charge you interest, which makes your cash flow even more negative. See how this can really hurt you? Right the ship today, seriously!
3) Bad credit
Missing payments, because you have no money, is bad for your credit. You might already know this, but do you really know what it means? I will show you how bad it really hurts you. I was denied at my bank for a $5,000 line of credit, who I was with since childhood. This was after I had paid off all my debts, saved up a large amount of money, and made a decent income. I had over 35K in investments with this bank and they wouldn’t even put through the application because of credit score. This was troubling to me on many fronts. I was doing all the right things and my mistakes from the past came back to haunt me. Luckily since then, my credit has improved with good practices, but it took several years to fix. Imagine if you want to buy a house or a car? Bad credit will haunt you so make sure you pay your bills on time and in full every month.
4) You aren’t saving money
If you are running a negative cash flow every month that means you aren’t saving any money. Even if you are saving a little money, if you are running up even a little bit of debt, your savings don’t mean much. You must have your net worth consistently growing and this only happens with positive cash flow. Savings comes into play when you apply for mortgages, loans, and credit. Savings come into play when you have to make a move, like getting a new job or starting your own business. Savings make you agile and not having them is a result of negative cash flow.
How to Successfully Build Wealth: 5 Tips – Budget Boss
5) Living day to day, week to week
When I first started waiting tables I felt on top of the world! Wow, I can make $100-$200 cash every night? I was only broke until my next shift. The sad thing was, I was literally broke every day until my next shift. Bills were late because I didn’t have the funds until that Friday, or the next Friday, or the next month. Food was neglected because I had no money either. Living day to day or week to week often leaves you making bad choices, like spending your last $40 bucks on pizza or your last $100 at the mall. The day I started living better with my money, magically I started living better in general. Weird how that works eh?
Payday Loans prey on those who live paycheque to paycheque
6) Missing work is not an option
If any of you know me, you know I don’t miss work. The difference between now and before is now I can afford to miss work whereas before I couldn’t. I have seen many of my friends come into work hurt or sick because missing a shift wasn’t an option. You then put yourself in a situation where you can get sicker or hurt. You also put your co-workers at risk of getting sick too. Having a positive cash flow means you can budge a bit, whereas if you are negative every month you cannot.
7) Stress
All these crappy things I have just mentioned can really eat at you. When you are worried about money, you are stressed to the max. Stress causes health problems like heart disease, heart attack, and stroke. It causes ulcers, stomach issues, and diabetes. Stress also causes marriages to fall apart, children to be neglected, and your work life to suffer. You are always on edge, always in fear and always ready to snap. Everyone handles stress differently but there is no doubt that stress hits all in a negative way. Running a positive cash flow will help alleviate those stressors.
The Effects of Stress on Your Body – Health Line
8) Relationships suffer
I just mentioned how stress can make your marriage fall apart and your children to suffer. Money is the number one reason for divorce. Seeing how divorce rates are now over 50% of marriages, a lot of people are seeing money affect their love life. Your friends and family will also suffer. You will either have to miss out on functions or be that guy he gets drinks bought for them and no one likes that guy. Christmas time will be an awkward time for you. Date nights will become very one-sided. Running a positive cash flow gives you a great confidence that will make everyone around you much happier. A happier you means a happier world around you.
A century and a half of marriage – The Globe and Mail
9) Your work will suffer
Maybe I am just trained to notice now, but I see a marked difference in coworkers who are stressed about money and ones who are not. The ones who are stressed don’t handle the stresses of work well and often their work suffers. They are snappier and often confrontational. In turn, the client can suffer. This can put you in hot water. It also means you might be overlooked for a new role or promotion. You want to be the best you at work all the time because it could mean lost money for you. It is no wonder that workplaces with pension plans and health plans function better than ones without. Financial security breeds good workers but the worker has to do their part as well.
10) Bankruptcy
Do not pass go, do not collect $200 and now all your houses and hotels are mine. Filing for bankruptcy or a consumer proposal or debt consolidation does not reflect well on you. No matter what anyone says about bankruptcy, it should be the absolute last resort for you. It ruins you, in many ways. Unless you are Trump, you will have a hard time making any sort of traction after a bankruptcy or consumer proposal. If you neglect your negative cash flow for long enough, you will find you have very few options left. One of the best options for you might be to go bankrupt. That will be a very, very terrible choice to have to make. Don’t let it get to that point.
There is a reason I dedicated a whole week to cash flow here at Budget Boss. It is literally the most important part of any financial plan. This is true for everyone including individuals, businesses and even our great country’s economy. Running a positive cash flow should be your focus until it becomes so ingrained in you that you don’t even have to think about it anymore.
Thanks for tuning in this week at Budget Boss for Cash Flow Week. If you have any questions about cash flow or budgeting, please do not hesitate to contact me at joe@budgetboss.ca. Also, don’t forget to sign up for the “2018 Financial Goal Setting Workshop,” being held at Innovation Works in beautiful Downtown London, Ontario on Tuesday, December 12. It is sure to be a great night of fun and education. Join us next week for another great topic on personal finance. Have a great weekend Bosses!
“Never underestimate the value of cold cash.” – Gregory Nunn
Email – joe@budgetboss.ca
Follow Budget Boss on – Facebook LinkedIn Twitter Instagram Pinterest Quora