First there was a subprime crisis, then a credit crunch, followed by a debt crisis and a credit rating downgrade, and now an ever growing debt ceiling that threatens a future Government shutdown with the possibility to sending the world into a global depression. To overcome more than one kind of depression, a positive cash flow is increasingly getting more important by the day.
It’s common these days to seek the trappings of success – a high-priced watch, a snazzy sports car, an elegant home – without being able to afford it. Our society has bankrupted itself by recklessly pursuing wealth on the dangerous road of credit. We buy certain material possessions to make a statement – which, unfortunately, is usually a lie. A lie that hinders positive cash flow.
A positive cash flow margin is also absolutely essential if you are to accomplish either long-term or short-term financial goals. Without a cash flow margin, you cannot accumulate in order to meet long-term goals. In addition, each of the four other short-term goals – tax reduction, increased giving, debt reduction, and increased living expense – can only be met by having a positive cash flow.
In order to reduce taxes, either additional expenditures must be made for such things as increased giving, IRA’s, tax sheltered investments, and the like, or income must be reduced. Either increased deductible expenses or reduced income will result in tax reduction. However, both require that there be a positive cash flow to begin the process.
Without a positive cash flow, increased giving is not an option. Once there is a positive cash flow, however, and it is used to increase giving, that decision results in decreased taxes because charitable contributions are deductible. There are many people who plan all of their tax reduction through giving. However, they had to have a cash flow margin to begin the process.
Obviously, if you want to reduce your debt principle payments, you must have the excess cash to do so. If you are “going in the hole” by overspending, then there is no way to get out of debt until you generate a positive cash flow. After debt repayment, that extra amount can be used to reduce debt further, which in turn increases the cash flow.
The first key to riding any financial crisis is to be debt free. The only absolute way to become debt-free, in the first place, is to have a financial plan prepared at the beginning of each year that does not allow for the use of debt, and that you will stick to through self-discipline.
The major problem most people face is how to get out of the debt that they are already in. there are only two ways to get out of debt after making the decision to avoid the use of debt: Examine the assets you have to see which ones could be sold in order to reduce debt; and in the absence of assets to sell to eliminate debt, set up a repayment schedule and strictly adhere to it.
You can reduce your lifestyle expenses. For instance, make sure you’ve establish a realistic budget, then follow it. Finally, make yourself accountable to someone spiritually mature to avoid impulse purchases. None of these steps is easy, but you’ll discover how beneficial they are for yourself. As soon as you begin to follow them.
Lastly, if a couple or individual has as a short-term goal to increase the level of their lifestyle through a new home purchase, a new car purchase, vacations, additional gifting at Christmas, or eating out more often, they must have a positive cash flow to have the additional funds.
The Bible does show many ways to overcome any financial crisis and reach financial freedom. Many of these principles are laid out in our successful course, the Scriptural Financial Freedom series. To learn more, you can download the Small Groups kit from our store.
Today’s Bottom Line
Living expenses and debt go hand in hand. Typically, debt is used to fund living expenses and, conversely, without the ability to borrow, the ability to increase the lifestyle is not there. So be positive about your cash flow.