One of the key things that were brought up again in again the Rich Dad, Poor Dad book series is the emphasis on financial education. We need to be financially educated and understand our own cash flow.
Why is understanding cash flow important?
If we do not know where we are financially, we cannot plan for the future. The key thing about knowing cash flow is to understand if the amount of cash we are receiving is more that the amount of cash we are using.
In the recent financial crisis in Europe, many countries are in trouble because of deficit budget. This means that they are spending more than they are earning and now owe a lot of money. When similar thing happens to individuals, most often we will be declared bankrupt.
In order to understand your cash flow, you need to take a journal of your income and expenses. You need to assess your situation for at least a month. However, be aware that one month assessment may not provide a complete picture if you have annual commitments or commitments that are not within the one month scope.
When assessing your expenses, you need to differentiate the fixed versus variable expenses.
Once you understand your current situation then you need to evaluate whether you are in position to control your income. You need to evaluate whether you are ready for a budget. If you are don’t meet the prerequisite then it is time to get help – work with your bank or the people you owe money to and come out with some arrangement or reduction in your loan or interest.
When it comes to improving our savings and keeping out of debt, the main thing that we need to look at is our Cash Flow.