Cash is the ultimate confidence builder. No, I don’t mean the type of confidence that makes you act like an arrogant prick at the local bar, but the type of confidence that allows you to take some financial risks without having to worry as much. For example, if you’ve ever gotten your emergency savings in order, do you remember how it made you feel? Chances are you felt a big weight lift off of shoulders. That weight was the fear and anxiety that goes along with not knowing that you’re finances are in strong enough shape to handle an emergency. Relieving yourself of that fear is huge, because it opens up the possibilities of your extra income.
Successful business owners and investors always tout the importance of excessive cash. The reason that it’s so important is the same reason why a lot of people in lower income situations seem to get caught up in the same cycles that prevent them from coming up. Without excessive cash, it’s hard to increase (or even start) your ability to invest. If all you have is enough to pay your monthly expenses, how can you ever improve your situation?
The key to increasing your monthly cash flow is three fold. You need to set up your emergency savings, have a good credit score, and make more money. Sounds easy, right? Well there are good reason why each are important and why they lead to more cash. We touched on the emergency savings earlier in this article but just to reiterate, having that reserve tucked away allows you the freedom to put that extra money towards something greater without having to worry about putting your finances in jeopardy. Having that cushion is one of the first steps in setting your finances up for success.
You might be wondering why a good credit score is important for increasing your cash? Well, because having that good credit score allows you two important things. First, it means you’ll get the best interest rates and credit card offers. Everyone will have some sort of loan debt in their finances (mortgage, car, etc), so having the lowest possible interest rates means that your money is working harder for you. The more interest you pay, the more cash you’re throwing away. The second advantage of having great credit is that you’re more likely to get approved for loans. Let’s say you want to invest in a rental property but you don’t have a lot of money to put down up front. Having that great credit gives you a better chance at being approved. Either way, a good credit score helps your cash flow by either making it so you pay less in loans or allowing you a greater ability to borrow money that you can use to invest with.
It’s pretty obvious how making more money increases your cash flow, but just keep in mind that there are multiple ways to increase your income. Look at any opportunities you might have (including reducing your spending) to try to find that excess cash flow. Having cash allows you to expand your financial horizons and start investing in things that interest you like retirement, the stock market, real estate, a business, or whatever else sparks your passions. It may take some time, but the earlier you get there, the sooner you get to start building your wealth.
