| Having a positive cash flow is an essential step in | | | | spending habit. Bad spending habit is a habit of |
| gaining financial freedom. I did not realize it at first. It | | | | spending on unnecessary things even though I am |
| was only after I have read the Rich Dad's series by | | | | aware of it. |
| Robert Kiyosaki that I have realized the importance | | | | For example, when I see a shop that is on sale, I will |
| of maintaining a regular cash flow and expenses that | | | | go and spend money simply because there is a sale. I |
| does not exceed it. I have to ensure that this | | | | know that these products or services are not |
| positive cash flow not only comes consistently, it | | | | necessary but I do not care because I cannot control |
| should be increasing. | | | | my urge to spend. I simply have a habit of spending |
| Basically, there is two ways to increase the positive | | | | on seeing a sale sign. |
| cash flow. The first way is to earn more and maintain | | | | By reducing wastage or increase income, I will be |
| the existing expenditure. The second way is to | | | | able to gain more positive cash flow. Yes, I can |
| reduce wastage. Usually, a combination of both | | | | invest my excessive cash due to positive cash flow |
| methods can be used to achieve a better positive | | | | in assets that generate passive income as learned |
| cash flow. | | | | from the Rich Dad's series by Robert Kiyosaki. But |
| For example, I am currently earning $3000 per month. | | | | before I do any investment, it is important that a |
| My monthly expenditure is $2500. Since my income is | | | | few fundamental things are handled first. |
| more than my expenditure, I am deemed to have a | | | | Firstly, I will save the excess cash as emergency |
| positive cash flow of $500. If I want to increase my | | | | funds. Based on my understanding of personal |
| cash using the first method, I can take up another | | | | financial planning, I should have an emergency fund |
| part time job or assignment to earn an extra $500 | | | | equivalent to 3 to 6 months of my monthly |
| per month. As a result, my positive cash flow has | | | | expenditure. In case of any emergency that cause |
| increase from $500 to $1000. | | | | me to lose my income, I can still survive based on |
| If I am using the second method, then I will be | | | | my emergency cash for 3 to 6 months. In the |
| examine my existing list of expenses to identify | | | | meantime, I can look for an alternative source of |
| which ones are unnecessary or redundant and do | | | | income. |
| away with them. In other words, I am reducing | | | | Secondly, I will use the money to insure myself again |
| wastage in my existing expenditure. | | | | risks. Insurances such as life insurance, personal |
| For example, I am currently subscribing to a particular | | | | accident insurance, medical insurance and so on should |
| magazine. I wanted to read the magazine but I never | | | | be used to manage the risk of great financial losses |
| seem to have time to read it. So the weekly issues | | | | due to unforeseen circumstances. |
| of the magazine just keep piling up untouched. That | | | | For examples, if I have an accident and I do not |
| is I am wasting my subscription fee altogether. When | | | | have any personal accidental insurance, then I may |
| it is time for renewal of subscription, I should simply | | | | end up paying a heavy sum of medical fees due to |
| stop the subscription altogether and save the money. | | | | injuries. If I become sick and I do not have any |
| However if I am not aware of my wastage, I will | | | | medical insurance to cover me, I will end up paying a |
| simply renew the subscription thinking that I will find | | | | large amount of medical fees. |
| time to read the magazine. | | | | When the above two things are done, then I will |
| My expenses can be classified into fixed and variable. | | | | consider investment provided that I do not have any |
| As its name implies, fixed expenses are those that I | | | | existing liability. If there is any existing liability, then I |
| have to consistently pay every month like my loans | | | | will need to judge whether it is wiser to pay off my |
| and mortgages. My variable expenses are expenses | | | | liability first or use the money for investment. As a |
| that are not consistent, like entertainment, food, | | | | thumb of rule, if I cannot guarantee the rate of |
| vacation, clothes and such. Wastage is usually found | | | | return for my investments is more than the loan |
| in the variable expenses. | | | | repayment interest amount, then I will be better off |
| Reducing wastage is quite different from bad | | | | by paying for my debts. |