Global Courant 2023-05-01 21:29:03
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The following is an excerpt from “This week, your wallet,” a weekly Twitter audio show produced by CNBC’s Personal Finance team. Listen to the latest episode here.
Being a “master of cash flow” is a key element of household finances — and also one of the most challenging, said certified financial planner Douglas Boneparth.
What does mastering those skills mean? It’s a twofold concept: knowing what it costs to fund your lifestyle and understanding what you can consistently save and invest, said Boneparth, president of Bone Fide Wealth and a member of CNBC’s Advisory Board.
“Balancing these two things[is]perhaps the hardest part of all personal finance,” he said.
Often people invest too quickly without this foundation, he said.
While investing for long-term goals is important because of the power of compounding, “what good is investing if you can’t stay invested?” Boneparth said. Without discipline around cash flow, an unforeseen life event can happen that causes you to dive into investments you’ve hoped for years wouldn’t come around, he added.
Once households have a handle on cash flow, they can set measurable goals and prioritize them: for example, building an emergency reserve and saving for retirement, a down payment or a child’s college education, Boneparth said.
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Households feeling financially strained may want to investigate whether they’re making “thoughtless spending,” says Carolyn McClanahan, a CFP and founder of Life Planning Partners in Jacksonville, Florida.
She recommends exploring what households spend on necessities such as housing and transportation (and making sure spending in these categories is as cost-efficient as possible) and “wants.” Search the latter category to make sure you’re using the services you regularly spend on, such as gym memberships and subscriptions to music services like Spotify and Pandora, McClanahan said.
You can put any savings — even if it’s just $5, $10 or $25 a month — into a savings account, she added.
“That adds up quickly,” she said.
Savers should ensure that these deposits are made automatically, ideally the day after a paycheck is in their bank account.
“If you don’t see (the extra money), you don’t miss it,” McClanahan said.
