Does it seem as if more cash flows out of your wallet than into it?
Is cash flow the key to growing wealth? If so, what is the best way to optimize cash flow?
Doug and Al Zdenek, author of Master Your Cash Flow: The Key To Grow and Retain Wealth, examine why you should broaden your definition of “cash flow” beyond having just enough money to pay bills, to include participating in a regular savings program.
Learn how to manage your cash flow now, in order to better prepare for retirement.
Make sure your money is accessible!
After working hard to save and grow your money, you want to make sure that it is accessible when you need it.
Unfortunately, often after one spouse passes away, it’s common for the surviving spouse to be frozen out of an account. Doug offers some advice to spouses on how to prevent this stressful situation. He offers some smaller steps that can make the difficult financial transition easier for a grieving spouse. Implement these preventative measures that can help the family avoid a frozen asset.
If you have any questions about how involved your spouse should be in your finances, watch Does My Husband/Wife Have to Come to the Meetings?
If you need to have the difficult conversation transferring financial control in your family, you might want to watch this movie.
If you’re not already receiving updates on new episodes, sign up now, and as a special bonus, receive Doug’s free ebook The Retirement Planning Book.
Interview with Al Zdenek
According to Al Zdenek, a nationally recognized wealth advisor and CPA, most people live life day to day, seemingly without realizing that there’s an unknown out there. Which unknown is this, and how can you prepare for it?
Douglas Goldstein: I’m very excited to have on, The Goldstein on Gelt Show, the author of the book, Master Your Cash Flow: The Key To Grow And Retain Wealth. His name is Al Zdenek. Al, a real pleasure to have you.
Al Zdenek: Great to be here, Doug. Thank you.
Douglas Goldstein: Al, cash flow is one of those things that I think people wouldn’t find as exciting as talking about stocks or bonds. Why is that the key to growing wealth?
Cash Flow Is the Key to Growing Wealth
Al Zdenek: You’re right. People would much prefer to talk about the latest stock they have and the greatest win they had. I usually say, “Look, if you don’t have cash flow and you don’t put together some money, it doesn’t matter whether you have a 5, 10, 20% return. If you don’t have the money, 20% on zero is zero.”
Douglas Goldstein: What I understand about the term “cash flow” is, do you have enough money coming in every month to cover the expenses going out every month? Is that what you mean, or do you mean more, in terms of growing a savings account?
What Exactly Does the Term “Cash Flow” Mean?
Al Zdenek: When it comes to cash flow, the one thing you want to start off with is, do you have enough money that comes in to pay your bills and live the life you want? Cash flow that a person needs is much more than that, as you know. It’s basically to have enough money to pay your taxes but also start to put away some money for someday in the future, when you don’t have to work.
Douglas Goldstein: A lot of people will listen to this discussion and say, “Yeah, these are the kinds of guys who tell me not to buy an avocado toast or not to go buy a latte. Is it going to make a difference by watching my every penny?” My question to you, Al, is, does it really make a difference?
Al Zdenek: We’re not planners that believe you should sacrifice some of the small things in life that make life worth living. There are so many other things to look at that will make such an impact. We’re not talking about cutting back on those things.
Douglas Goldstein: When you say “look at it,” you mean more than just glance over it at a cursory level. What are people supposed to be looking at, if they want to master their cash flow?
Al Zdenek: As again, you probably know, Doug, most people live life day-to-day and there’s an unknown out there. The unknown is that they hope to have enough cash flow to cover what they’re spending. The unknown for them is, how much do they need to eventually not have to work or be independent?
They don’t know what kind of cash flow they need. They can sit down and with the help of another person or themselves, say, “Okay, this is coming in and this is going out.” They don’t know what else they need above that. Some of them either put it off or there’s a fear of it that, “Gee, I don’t know how I’m going to do it.”
I think a person has to look at making sure they have enough to start off with, then eventually finding out what do they need so they can get over that fear of making important decisions around their cash.
Douglas Goldstein: Just to clarify, you’re talking about a person who’s thinking to the future, who’s probably in his 20s or 30s or 40s, and he’s thinking to the future. He knows that he’s going to need a certain amount of money to retire at some point or to stop working, or just to simply become financially independent. To do that, he’s going to have some lump sum of money that will generate enough income for the rest of his life. Figuring out how much that is, is the trick. Is that what you’re describing?
Al Zdenek: Again, people don’t really start looking at this until they are in their late 30s, and still, that’s unusual. It’s probably in their late 40s, early 50s, when 60 doesn’t look that far way. They don’t know what that lump sum or that pile of cash is, or pile of investments is in the future that they need, so that allows them to not have to work anymore or do something else.
Some people, by that time, have accumulated something, but they have no idea in relation to where they want to go or where they have to be, or where they are. A lot of people are not exploring that, so that they actually can wind up knowing what that gap is.
Douglas Goldstein: Let’s go back to what you’re bringing up, which is that there’s a certain amount of money that people need to be financially independent. What is the first step that someone should take to figure out how much that is?
What’s the First Step to Financial Independence?
Al Zdenek: Most people do not have a good financial education or background. I always tell people to go out and get some help from a financial planner, or someone that could help them to start seeing where they are now and then help them do those calculations. More importantly, they need to educate you on how to make the best financial choices.
The first thing to do is to surround yourself with what I call “a championship team.” Have people around you, whether it’s a planner, banker, or an attorney, that are going to give you the best advice. Start off with that coach, and that coach is your financial planner.
A Financial Plan Is Another Name for a Long-Term Cash Flow Analysis
Douglas Goldstein: Thank you very much for the plug, because I am a financial planner as well. My day job, when I’m not doing the radio show, is I work with people who live outside the United States who are also dealing with all of the same types of things that you teach about, which is how to figure out what you need today and what you’re going to need tomorrow.
In fact, a lot of the times when I do financial plans for people and they say, “What does that really mean?” I explain to them that a financial plan is just a long-term cash flow analysis. It’s saying, “From today till I die, will I have enough money to pay the bills every month?”
I think that that’s important because it’s not necessarily how rich you are that can you keep you afloat every month. One of the problems that I’ve seen is that people don’t have enough of a mindset to make the changes that they need to make in order to become better at handling their money. I think these are habits. How do you get someone to transform his habits in order to become better at managing money?
Transforming Your Habits for Better Money Management
Al Zdenek: For one thing, you have some really great stuff in your book, The Retirement Planning Book. I’ve read part of it; haven’t finished all of it, but you have some great stuff in there. I can see we think quite a lot on this. How to get people started? I think you have to give them the possibility or the fact that why should they?
If you can start saving early or make good decisions, you might be able to retire or get to your financial choices earlier in life. If you could show a person, let’s say they think they are going to be there by 65, but you say, “Gee, if you did this or that, or made some of these other choices, there is a chance you might do that by 58 or 60.” I think you give them a strong reason to start to possibly plan earlier.
Douglas Goldstein: This reminds me of the book by Simon Sinek, Start with Why. It’s understanding that there is a purpose to doing this; it’s not just suffering. The goal is not just to not spend money and not have your latte and not go on vacation so that one day, who knows? It’s a specific goal you have in mind, a specific amount of money that you are going to need to do a specific thing, whether it’s to stop working or to switch jobs, or to pursue a hobby, or spend more time with your family.
In order to do that, and again I just want to go back to your core theme, is you need to have a cash flow that allows you to cover your current expenses, as well as put away enough money on a monthly basis to build up a portfolio.
We only have about a minute left, but what are some effective cash flow management tips you could share with people to make them better at this?
Effective Cash Flow Management Tips
Al Zdenek: The first thing is that most people don’t know what comes in and what they spend. At the very least, whether it’s on QuickBooks, or on the back of an envelope, start to see what is coming in and what is going out.
Then you might say to yourself, “Okay, gee,” as you’re looking at these expenses, “are there magazine subscriptions that I don’t need? Are there other things that I’m spending on that I’m not sure that I need at this point?” Again, like I said before, I’m not one to say, “Don’t have that latte in the morning.” If you’re really enthusiastic about it and you want to see if you want to cut one of those two, one of those or two of those, please do so.
Are you doing something else? If you have some spare cash, put it into your employer’s 401(k), or whichever plan they have, which will save your taxes. Are you doing things around your deck? Can you get a lower rate of interest on your credit cards if you have a balance, or on your mortgage? There’s a lot of things you can start doing, but you’ve got to start concentrating on it and focusing on it.
Douglas Goldstein: I think that is great. I’ll just give you one statistic and then we’re going to wrap up, and I don’t know if this is true or apocryphal, but it doesn’t even matter. I think it’s such a great point. You know that people talk about this concept of “buyer’s remorse.” A lot of times, you buy something, go home, and the next day you feel bad about it, although it doesn’t always happen right away. One of these studies showed that within a year, people have remorse over 80% of the things that they bought.
I think this is very interesting. It’s not that the next day you go, “Oh gee, I shouldn’t have bought this or that.” Over time they go, “I didn’t really need that.” If you take that 80% that you spent on all that other stuff, and instead use it and spend it on the 20% of the things you really like, or most of it, you could put a little aside for savings, and you would be much happier because you’ll have bought the things that you really like. I don’t think that budgeting or cash flow management needs to be a negative experience. It can enhance your life a lot.
I know that one of the things that can enhance people’s lives a lot would be to follow you and follow your work. In the last few seconds tell us, how can people keep track of what you’re doing?
How to Follow Al Zdenek
Al Zdenek: That’s very nice of you, Doug. They can follow me on www.alzdenek.com . If they go to that site, they can take a personal assessment around their finances or they can really go on the Amazon site and see if they want to learn more about my book. Again, there is also another site www.masteryourcashflowbook.com
Douglas Goldstein: Okay, Al Zdenek, thanks so much for taking the time.
Al Zdenek: Doug, it was a pleasure. Thank you.