Responses - Why Being Cashflow Positive Matters

When I drafted the table of ‘risks versus responses’, being cashflow positive was a surprise addition for me. 

In hindsight, all risks/hazards have some form of financial impact, either by requiring money to prepare (e.g. civil defence supplies, home insurance) and/or to respond (e.g. paying the excess on insurance claims). Staying cashflow positive over the long-term has been a major source of my readiness/resilience – it was how I paid for all the resilience responses that I’ve got.

By writing this post, I identify some of the key lessons learnt about being cashflow positive over the last 30-odd years. I do this to understand the lessons I’ll carry forward. I’m conscious that everyone’s goals and circumstances are unique, so I offer it to you as (hopefully) motivational insight, not specific financial advice.

For this article, ‘cashflow positive’ means that income exceeds cost-of-living on a monthly basis and yearly basis. Or in other terms that you have something left over at the end of the month after paying the bills.

The Benefits Of Staying Cashflow Positive

Life-time Lessons

As part of writing this article, I’ve realised that

• Money is still needed, so I won’t quit the day job. The mortgage still needs to be paid, and the bank doesn’t take payment in fresh vegetables.
• Financial shocks in life are inevitable, so it’s worth having a full range of shock absorbers (e.g. appropriate insurances, an emergency savings fund). They aren’t exciting, but they have stopped me going backwards when bad stuff happens.
• It's amazing how much stress goes away when you can pay the surprise bills.
• Becoming resilient has my constant motivation for managing my finances.
• It has been the classic metaphor of a journey, but one through fog - each milestone only being seen after rounding the corner in the road. Having an aspiration/vision is useful, but I’ve delivered by working through short-term practical goals.
• The benefits/savings compound over time. It may seem trivial, but the silver beet I planted 10 years ago – their descendants are going strong, as are the savings which in turn fund the next ‘investment’.
• I would have got farther, faster, if I had used cheap loans earlier to reduce ongoing living costs e.g. purchased my solar-power installation at a 1.5% interest rate. Now that I’m aware of the green loan my bank offers, I’ll be using that to fund e.g. the battery bank purchase.

Natural Disasters

A positive cashflow helps focus on immediate safety and long-term recovery without the added burden of financial instability.

• Beforehand, it enables you to prepare e.g. compile civil defence kits, pay insurance premiums reliably
• During an event, expenses can be paid out of your own pocket when you need it, while minimising any debt.
• After an event, it’s easier to pay for any recovery costs and repaying any loans.

One thing I have learnt is that my father was right – (appropriate) insurance matters. It’s boring, but it matters. A full range of financial shock absorbers like insurance and an emergency savings fund is all part of an effective response and peace of mind.

Inflation

In a way, life is a race against inflation. Having positive cashflow effectively gives me a degree of insulation against rising prices, which I’ve used to get ahead of the cost of living by

• Saving on the small things by e.g. paying annual premiums rather than monthly ones
• Buying non-perishable essentials/staples in bulk at todays prices, and saving on tomorrows prices e.g. tea, coffee, toilet paper
• ‘Investing’ in ways to reduce living costs e.g. expanding my vegetable garden as cash comes available, accumulating further savings.

Unemployment 

Being cashflow positive helps with unemployment or reduced income while self-employed. It absorbs the financial shock, in that

• It contributes to a financial safety net
• Stopped me from borrowing
• Kept my stress levels lower
• Allowed me time to find a good next role rather than leaping for anything.

Surprise Expenses 

Staying cashflow positive enables households to handle surprise expenses more effectively e.g. $1000 of unexpected dental repairs. Being cashflow positive

• Provides peace of mind that a bill can be dealt with
• Prevents the need for costly borrowing, reducing financial stress
• Protects long-term financial plans, and
• Maintains overall financial health and stability.

Home Security 

Having been robbed twice over the decades, I believe in the value of keeping what you’ve got. Insurance (thanks Dad!) usually only covers some of the replacement cost, and then there’s the time required to deal with the claims etc. It doesn’t address the sense of violation and other insults one feels.

Effective home security systems (including fire alarms) contribute to the safety of family and retention of property. My experience has been that security alarms, fire alarms and extinguishers provide a degree of confidence that make reliable, appropriate equipment worth the cost.

The safety of those you love is priceless. This is an area where everyone has to make their own assessments about the risks and the appropriate responses. Being cashflow positive means

• Pay for the above gear out of my own pocket, and
• Have the financial flexibility to respond effectively e.g. repair broken windows.

Conclusion

Becoming resilient is a journey which requires money to fund it.

A full range of financial risk-management tools is useful, however being cashflow positive is an essential contribution.

Being cashflow positive reduces your risks in life and funds the responses. Building up the homesteads self-sufficiency can be an investment that reduces you cost of living, and improves your cashflow. Together, these improve your homes resilience.