I had to prepare a personal financial statement again for the bank that holds the loan on the commercial building that I own with a partner. Actually the bank owns it, and we are simply making payments to eventually acquire full ownership. I am not sure why they are wanting the information so soon since I completed this exercise at the end of May. Although I suppose it could have actually been for a different bank at the time since I have had several requests for the information from various banks for various reasons.
This is the only time that I bother to go through this exercise since it takes a few hours to get all the information together. That is time that I would rather be spending doing something else. But the good news is that from May 28, 2012 to September 2, 2012, my net worth increased by 18.5%. I was really rather shocked since it had only been a little over three months. The previous increase had been 28% over 6 months which I thought might have been an anomaly so I was only expecting maybe 6% at best.
Looking At the Numbers
When I look at the numbers, I realize that the increase in net worth has come from two primary reasons.
First, my total retirement account assets have increased. I have continued to save the maximum even though cash flow can be tight at times. I have always believed in paying myself first even though I have trouble doing that with net income at this point. I also receive a match so there is no way I would be passing up free money.
Second, I have been contributing more to the commercial loan than my partner so I now own a greater percentage of the commercial building and have been benefiting from the decreased mortgage balance on that and a few rental properties. I now have more equity in the real estate than I did in May so each payment that is made will simply continue to increase my net worth.
While it is nice to see net worth increasing, it does little to help the monthly cash flow and will not pay off any major debts that are coming due. Unfortunately, I will have to make some tough choices in the months ahead. I suspect that things will be getting better, but it may take to the end of 2013 before I see some major results.
At least it is good to see things headed in the right direction. I have a plan and a suspicion that the plan may just work.
There is no doubt that cash flow is one of the most important aspects to managing personal finances and building long term wealth. It is only when one spends less than one earns can the excess cash be put to good use and be used to make additional income. If you are constantly spending more than you make, then it becomes impossible to begin to build wealth.
It took me a while to realize the importance of cash flow, but now that I am trying to focus on this aspect of personal finance, I feel that I am beginning to turn the corner and will see marked improvements over the next several years. Cash flow is much different than net worth. It is possible to have many assets that do not yield much cash and to even have a positive net worth and be in danger of bankruptcy if those assets cannot be sold in a timely fashion.
Two Ways to Improve Cash Flow
The concept of improving cash flow is simple and yet can be difficult to implement. You can either make more money, spend less money, or work on a combination of the two. I am working on a combination of the two simultaneously.
First, I am saving money by using extra cash flow to pay off debt. I have managed to pay off a business credit card and a business credit line in the past 6 months. This freed up almost $200 per month minimum that I no longer am obligated to pay each month. I am now working on paying off my Discover Card. My goal is to get it paid off by the end of the year at the latest freeing up another $200 per month out of my spending plan.
Just these small moves make it possible to restructure some of my debt to create a reasonable plan for becoming debt free over the next 6-10 years. That may seem like a long time, but I do have a lot of debt so I would be pleased to have it done in that time frame. The net impact to my monthly cash flow will be negligible and easy to manage while relieving a large debt burden off my shoulders.
Earning More Money
I am also trying to pick up extra shifts at work when possible and using my blogging income solely for debt repayment. There is a limit to how much I can work, but there is plenty of room for income growth from blogging. The longer I am online, the more traffic and earnings that become possible. As debt payments are made each month, more goes to principal. There is a virtuous cycle that is created as I mentioned above.
I have other debts that will be paid off naturally over the next few years which will only continue to improve monthly cash flow. I have been paying close attention to the debt balances and the minimum monthly payments. Each month, they are declining leaving more room in the budget although I am committed to paying more than the minimums and creating more and more breathing room.
Looking for More Ways to Improve Cash Flow
There are other places that I could be saving money so I will be constantly reviewing these areas as well. Looking at costs for insurance, trying to get lower interest rates for debts, eating out less and more frugally when we do are just some of the ways to save money. I am also doing what I can to grow my online earnings through expansion of blogging opportunities.
I am trying to increase my focus on dividend stocks, but that doesn’t help me in the near term because they are in retirement accounts. However, the experience and knowledge gained is invaluable for when debts have been retired and cash producing assets could be purchased.
Blogging has provided a great opportunity to focus the mind and to actually accomplish tasks. The accountability is awesome. When I started this blog, I had just come to the conclusion that cash flow was one of the most important priorities on which I needed to focus for a while. Hence, the name of the blog. Focusing on cash flow has been a great idea, and I will continue to do so documenting my progress as I move forward.
Thanks for reading and joining me on this journey.
Categories: Earning, Spending Tags: Discover Card, Free Cash Flow, Money, blogging, cash flow, debt, earning money, make more money, monthly budget, net worth, paying off debt, saving money, spending plan
I only update my net worth when I have to send the annual personal financial statement to the bank to comply with the requirements for a loan my partner and I have on a commercial building. However, now that I hope to approach my Mom in order to solicit help in the form of a loan for using for a back tax debt, I figured I should go ahead and get the numbers together along with my budget so that I could demonstrate my ability to pay it off.
The last time I filled out the statement was in mid-July when I had a certain positive net worth. It is more than my tax liability, but the problem is that the vast majority is held in real estate and retirement accounts that I can’t readily access. Unfortunately, I did too good a job of paying myself first, but it was at the expense of current cash flow. Obviously, I will have to learn from this mistake.
I was pleasantly surprised to find that in the previous six months, my net worth had increased just over 28%! It was a combination of increased balances in the retirement accounts and decreased debt.
Needless to say, I was quite happy. It is about time that I got a little good news. It has been a somewhat difficult month, although I am incredibly thankful for my overall position in life. The problems that I am dealing with are quite minor in comparison to what could be going on, so I am not going to complain too loudly.
Prosper Loan and Mom
I sent in the requested documentation for the Prosper loan which I am hoping will be funded to take care of some of my tax debt. I am so thankful for those who have already contributed. So far, the loan is 9% funded. Here is the link to my loan. The listing expires in a little over 10 days. I am somewhat concerned that it won’t get funded, but maybe activity will pick up again once all the documentation gives me a level 3 verification. When it is all said and done, I will be able to write a post on the experience so I am looking forward to that.
I also sent an email to my Mom a few minutes ago. I figure that I will get a preliminary reply tomorrow sometime. It was very difficult to swallow my pride and ask for help. I am very independent and have been since I was a teenager. I am sure that I will continue to be independent, but I am hoping to recognize those situations where it might benefit me to ask for assistance. Maybe that is a sign of increasing maturity? Who knows? It was difficult to write and send, but it is done. Now I will wait.
I hope that the next several weeks of posts won’t be dominated by tax discussions, but it is a matter that is front and center right now given my current situation and the time of the year. I trust that most of you will be having less angst when it comes to the IRS, but feel free to write a comment or two.
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