So for us, this is a great time to take another look at our cash flow plan and see if any revisions are necessary.
The Spotlight on Cash Flow:
As we all know, having a budget is absolutely essential to financial stability. Unless income > expenses, you’ll never have control over your finances.
So once you DO have your budget somewhat under control, what’s the next step? This is where your cash flow plan comes into play.
With a cash flow plan, you need to decide how you will divide up your income not only so that each of your goals will succeed, but also so that your getting the maximum potential out of your cash. In other words, where can you put your money so that it works the hardest?
Most importantly of all, if you are really clever, you’ll set put your money into things that will generate even more money for you later on!
Our Cash Flow Plan Revised:
It’s been a while since my last cash flow plan update. In this go around, I decided to change the format to something a little more like what was presented in the book Rich Dad Poor Dad
. Here is my revised cash flow plan:
Employment Income: Obviously our employment income will satisfy things like our everyday expenses (utilities, credit cards, food, gas, etc) as well as the BIG long term liabilities like our house and car payments. Even though I “could” make extra payments, I elect not to because I’d rather put that money towards my Assets. My retirement goals are of a higher priority to me.
My Assets include all the major items like our 403b, 401k and IRA retirement plans, and even our children’s 529 college savings fund. If you notice, I chose not to fund these items with my annual profit sharing bonus or tax refund because these things are never guaranteed year after year, and can fluctuate in value. Instead, I’d rather keep these things part of my regular monthly budget and just learn to work around them rather than financing my retirement plans with “extra” discretionary sources of income.
Even though it has taken years, we’ve been able to max out our 401k and IRA plans. The 403b is nearly maxed out.
Blog Income: Fortunately, this blog has started to generate a little bit of money for me. So what should I do with it? Again, should I pay down my long term liabilities?
No, my goal with this new found income source was to put the money into something that would create yet another income source for me. This is why I have elected to use blog income to fund my dividend stock fund.
Again, you might ask why not use the money to pay off my liabilities faster and become debt free? As nice as this sounds, I don’t believe this is the smarter choice for my cash flow plan:
1) My house and car are both on fixed 3.75% and 2.25% interest rates. My dividend stock fund not only has the potential to grow like an index fund, but also will generate a return of 3 to 4%. Therefore, the dividend stock fund has better long term potential.
2) Because they are equities, dividend stocks have the opportunity to grow with inflation. Your fixed rate house and car loan payments will actually decrease in value with inflation as time goes on. For example, paying a $1,000 house payment 30 years from now will feel much “smaller” than the same $1,000 house payment you pay today.
Will I ever use the blog income to re-invest in my website or start another one? We’ll see …
Dividend Stocks and Income: Outside of our retirement funds, growing our dividend stock fund will be very important to us over the next few years. The income from the dividends will be used to purchase more dividend stocks the following year. Where we’ll really be getting a boost in purchasing power is with our annual profit sharing income and tax return.
Profit Sharing and Tax Refund: Even though they only come once a year, these sources of income will usually serve a great number of purposes for our cash flow plan. In terms of assets, they will be used to buy more dividend stocks as well as build up our general savings.
And as for getting out of debt quicker, this is the part of the cash flow plan where that happens. Because these funds are discretionary, they will be used to lower the amount of money we owe on our liabilities so we can slightly accelerate being debt free.
Critiques of My Cash Flow Plan:
• Most of my assets are retirement bound and will not be available until I reach age 59-1/2. While that’s okay for retirement, that will not help me now or my early retirement ambitions. I need more smart-tax income sources that will “bridge” my path to early retirement!
• Like the dividend stocks, I need to create more asset groups that will lead to additional sources of income generation. Should my next side hustle be in real-estate, another Internet related property (such as another blog or website), or something else?
Readers – What’s in your cash flow plan? How do you have your money setup for optimal efficiency? Where do you see your money creating sources of income for you in the future?
Related Posts:
1) My “Money Design” – 2012 Update
2) My Alternative Emergency Fund Strategy and How It Works
3) Adding Your Children’s College Savings to the Budget
4) Book Review: Rich Dad Poor Dad by Robert Kiyosaki
Image Credit: freedigitalphotos.net
We live off of about 50% of our income and use thedifference to save and pay down our mortgage. It should be completely paid off in 3 years! We are also trying to acquire more rental properties (we currently have 2) for the somewhat passive income. We hope to have 3 or 4 more in the next ten years or so!
Our blog has started to make money but not enough to make many plans for…..yet! =)
At the rate you two are going, your blog will be making more money in no time!
2 rental properties and more on the way? You guys have got your S**t together! Perhaps you should just cut to the chase and buy an apartment building! In all seriousness, I’ve read several books that suggest that’s the way to go and diversify your risk. Pick yourself a nice college town and you’re set!
If you’re concerned with retiring early why not invest money outside of the retirement accounts or go with a Roth IRA and that way you can at least pull out your contributions prior to 59 1/2?
I’d personally forgo some of the retirement accounts and work on saving to buy some rental properties. I’ll also be looking at P2P lending…despite the lack of tax-deferred growth, the returns are fairly impressive and makes up for the taxes you’re paying each year.
Good points. Let me clarify: Post age 59-1/2 retirement is the most important thing. This is why I put so much emphasis on my 401k, 403b, and Roth IRA (I forgot to mention in the post that it IS a Roth). But in the last few years, I’ve decided to challenge myself with putting an equal amount of emphasis on the pre age 59-1/2 retirement. I know that the blog income, dividends, and possible rental income are probably my best bets.
P2P is something that has always intrigued me. I got all excited about it years ago when I read about it in Smart Money. But then I held back when I read about so many people getting burned by it. BUT then I’ve also heard good things about it since then. I’ve been considering taking a spare $1000 and giving it a shot. Have you had any luck with it yet?
I love that you’re using your blog income to fund another source of income for yourself. I’m doing that with my blog income by investing it back into my blog so I can generate more. I’ve been investing it in my design and more time to network and I tried to invest in going to the Canadian Financial Blogger Conference this past weekend but I couldn’t make it. Good luck!
Thanks Daisy. When did you start writing for Free Money Wisdom??
Personally I’m reinvesting a lot of my blog income into dividend paying stocks too. I’m also reinvesting into my blog though. I don’t have any plans for a site redesign or anything, but I have various marketing plans which will require some investment, but should work out well in the long run. Eventually I may invest more back into my other websites too. You may find that option to become more attractive as you start making more online since you’d be paying taxes on all that money otherwise.
Check it – great minds think alike (on the dividend stocks)!
I do think the re-investment back into other websites is a totally viable option, especially after the small bump in income I have felt on MMD. Unfortunately my other site is not doing a whole lot in terms of income. What kind of “other marketing plans” are you going exercise?
While I save a decent chunk for retirement and to pay off my girlfriend’s student loans when we get married we don’t actually have a cash flow plan… sounds like another item to add to the massive to do list!
I know that TO-DO list. I think I have the same thing. Is that the one where things get added but they never seem to come off? 🙂
I think we are halfway there if just have a plan. I’ve only recently thought about adding blogging to my plan. I don’t know what kind of $$ I can make, but even a little is great in my mind as I do it for the enjoyment of it.
Another aspect of my cash-flow plan is preferred stocks. (I’m a huge fan of dividend investments!)
Interesting! Where do you buy your preferred stocks from?
That’s an amazing rate for a car loan! Either that or we’re getting really, really screwed. I believe in doing everything at once: saving (for emergencies etc,) paying off debt, and saving for retirement. It can seem more fulfilling to do one at a time and knock them off a list, but it’s more practical to do them at the same time…for some, if you worked only on paying your debt down you’d never see a penny saved.
I do agree! Setting many goals and chipping away at them one by one has worked out well for our plans! Over time, each of the “buckets” builds up and I got a lot accomplished.
I like your dividend re-investment strategy. It has worked well for me over the years. There is nothing safer than investing in finest companies of the world while getting paid quarterly. Keep up the great work, MMD! It’s inspiring that you both are so focused on building retirement portfolio.
Thanks Shilpan! If you were to ask my wife, she would tell you that I never shut up about it, and so we discuss these things often. 🙂
I love how you have all that planned out. Right now, we are on the real estate train. We plan to acquire more over the next few years, but if this first one turns into a fiasco, we might reconsider. Someday, I’ll find the time to get organized to write down a plan. As long as I see people who actually walk the walk, it keeps me motivated to do the same.
I could take a cue from you! Here I am “thinking” about adding rental income to my portfolio of opportunities, and you’ve already done it and are thinking about your next ones! You’re the one providing the inspiration for me.
we are a married couple and for last 2-3 years we have been completely dedicated to our cash flow plan like you.
We save as much as we can. Following the rule of saving 10% of Brian Tracy , now we can easily save up to 50% of our income and the rest goes in investing.
Cash flow is essential when we think about managing our money. For more cash flow we invest in dividend paying stock.
Your blog is great, full of useful information on how to manage money well.
Thanks for sharing.
Thank you and welcome to the site! It’s reassuring to hear of other couples that have made this work for them.
Good Cash flow Plan my friend. Not many people can be dedicated to using all of the bonus money to invest. Usually something comes up that is needed aka wanted in their life.
Its something I’ve started doing more of recently. Its been very hard, but I know its the right choice.
If you retire from a company and not get another job you can start withdrawing from your 401k without penalty at 55. I’m keeping my dividend stocks but holding off on purchasing more as the valuation is vey high. If you earn 4% and the stocks takes a hit and drops 20% that’s 5 years of income.
I don’t see rental properties as your cash flow plan. Even if they generate income with enough write offs you pay no tax and can actually reduce your taxes with the right property.
I have long been a fan of the age 55 rule, but doesn’t it not work if you retire earlier than that? Say at age 50?
Rental income isn’t a part of it yet, but it’s on my wish list!