Not long ago, I was chatting with an acquaintance who told me about a specific stock he’d invested in.  Since the stock had gone up recently, he had made a little money. Just enough to buy something he had been contemplating for some time, but wouldn’t have had the funds for otherwise.  However, after he sold some of his shares, he realized the taxes on his capital gains were more than expected.  As a result, he didn’t have quite enough to make the purchase without dipping into his long-term savings.

As you can imagine, he was very disappointed. 

Around the same time, I was having a chat with a retired client of mine.  She wanted to attend a relative’s wedding, but due to her health, was dreading the five-hour flight she would have to take. I suggested she travel first class to make the trip easier. 

“Do I really have the money for that?” she asked.      

I explained that, given her investments, her Social Security, and all the various sources of income at her disposal, she had more than enough.  So, she booked her ticket and had a great time. 

As you can imagine, she was quite delighted! 

What do these two stories have in common?  Why am I sharing them with you?  Because they both illustrate an important concept: Personal cash flow. 

Your cash flow is essentially the net amount of money you have coming in versus going out.  Think of a bucket that you’re trying to fill with water.  Any taps, hoses, bottles, or pitchers you use to pour water in are your cash inflows.  Any leaks. holes, or even spigots in the bucket are your outflows. 

Cash inflows can come from many places.  Your salary.  Interest from savings accounts.  Dividends from investments.  Capital gains whenever you sell a stock, bond, or other asset.  Royalties and rental income.  Pension.  You get the idea. 

A person’s outflows tend to be even more varied.  There’s the everyday stuff like gas, groceries, utility bills, subscriptions, and entertainment.  There’re also larger, and often longer-term expenses like rent or mortgage payments, medical bills, student loans, credit card debt, etc. 

And of course, as much as you might like to, you can’t forget taxes.  Income taxes, property taxes, capital gains taxes…

Obviously, a positive net cash flow means you are bringing in more money than you are spending.  A negative cash flow means you spent more than you brought in. 

Everyone, no matter what stage of life they’re in or how much their net worth is, must think about cash flow to some degree.  Your cash flow determines, in large part, what kind of lifestyle you’re able to live.  Whether you can start achieving your dreams and financial goals now, or whether you have to wait until after retirement. 

Cash flow is especially important in retirement.  Your biggest and most consistent inflow – your salary – will be off the table, but your outflows will remain.  Sometimes, they’ll grow.  Having a positive cash flow is crucial to enjoying your dream lifestyle and not outliving your money. 

It's extremely common, however, for people to feel uncertain about their cash flow.  It can be difficult to keep track of all your outflows or know which inflows to focus on so you can maximize them.  In many cases, your outflows can impact your inflows more than you realize.  (For proof of that, just read the first story again!)   

For example, here are some questions you may find yourself asking from time to time: 

• How can I achieve more of my financial goals now instead of waiting until retirement…without dipping into my retirement savings?
• I know I’m earning a lot of money; why does it feel like I can never get ahead?
• Is there a way to derive more income from my investments?  What about minimizing capital gains taxes on them? 
• What will my cash flow look like in retirement?  Will Social Security be enough, or do I need more inflows/sources of income? 
• How do I know whether I can take advantage of more perks and luxuries without diminishing my retirement savings? 
• Are there potential inflows I’m not taking advantage of?  What are they?
• What can I do to minimize my outflows? 

If you’ve ever wondered any of these questions…or if you’ve simply felt frustrated that you’re not achieving more of your financial goals sooner, it may be time to analyze your cash flow.  I’d like to help by offering a free second opinion on potential ways to improve your cash flow.  Together, we can determine how to save more for retirement while achieving more financial goals now.  In short, I’d like to offer a second opinion on how to fill your bucket faster! 

Of course, it may be that your bucket’s in great shape.  If so, great!  But if you ever feel like your bucket’s leaking, or not filling fast enough, please give me a call at 416 369-8835 or email me at stephen.hamer@cibc.ca. I look forward to meeting with you!