Increasing your positive cash flow is one of the most important tenets to accumulating wealth and ultimately achieving financial independence.

What is cash flow?

Cash flow is simply the flow of money coming in and and going out. If you are spending less then then you earn then you are cash flow positive. If you spend more then you earn you then you are cash flow negative.

Why is this important?

If you increase your positive cash flow then you’ll be able to save more. Now sure you can say “To hell with saving” and achieve your financial goals via other means like investing, gambling, or even  rob a bank but there is a lot more risk involved. Sure you could be the worlds greatest investor and turn $1 into $1 million but then wouldn’t it be easier if you had started with $2, $100, $1000? In the end you have more control over your cash flow then anything else and therefore makes it the most important element to increase wealth.

Spend Less

• The written price isn’t the final price – Always ask for promotions to be applied to your cable and phone bills. Ask for a better deal on those new shoes you’ve been looking at. If your willing to haggle on the price of a new car then you should haggle on everything you buy.
• Work toward eliminating unnecessary fees – This may mean maintaining a minimum balance in your bank account or switching to a no fee service like PC Financial. As well there are things like credit card fees and balance insurance. In either case these small services add up and are counter productive to increasing your positive cash flow.
• Stop frivolous spending – Before making any purchase take and minute and ask yourself if you really need it .   More times then not you’ll find that you really don’t need and will end up putting it back.
• Cook at home – Instead of going out to eat go grocery shopping instead. Take-out is fine once in a while but it shouldn’t be a nightly ritual. There is a huge premium out restaurant food and most of it can be cooked at home for a fraction of the cost.

Earn  More

• Take initiative at work – Step up at work and let the people above know what you’re doing. That way they know what you are worth to the company and can compensate you appropriately when the time comes.
• Pursue additional certifications or courses - Some companies provide pay raises for achieving additional credentials. Others provide bonuses. If your company provides neither then at minimum you are building your resume for a move some where else.
• Seek other opportunities with other employers – Though this isn’t exactly the best economy to be job hunting there are always opportunities because in the end the best career moves are always a matter of right opportunity at the right time.
• Find alternate income streams – You could parlay your hobby or interest into something that earns some additional income. If you do scrapbooking then look at making invitations for people.

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So you finally got around to signing up for that low fee, high interest bank service – now what? Most likely you’ve got most of your money in your chequing account, which barely pays any interest. At the same time you try and scrounge together a few dollars to put away into your high interest savings account. The high interest account doesn’t seem to be having the impact you thought it would since most of your money is in the chequing account. The solution is simple, keep all of your money in the high interest account and only move money over to the chequing account a few days before you need the funds for bills. Since bank interest is usually calculated daily and paid monthly, every day you keep your money in your high interest account is more money you are earning. Some people will say the interest isn’t worth the time but I beg to differ. The simple answer is to automate your transfers between accounts. Once you get it set up then you spend very little time having to bother with it again. Just follow the guidelines below and everything will go smoothly.

Categorize and classify your expenses – The first thing you need to look at is categorizing your expenses, which I hope is already done because you have a budget setup. For us we have 6 major expense categories: Cable bill, Phone/Internet bill, Mortgage, Condo Fees, Dining out, and Groceries, The first four that we categorized were classified as fixed because the payment comes due relatively at the same time every month. It’s these items that we can setup the automatic transfers for and never look back except the count the added interest. Dining out and groceries were classified as variable because the expense happens over the entire month, unless of course you happen to buy a months’ worth of groceries on one day. For variable you just pay with a credit card that offers rewards and then pay the card off at the end of the month. This will allow you to earn both rewards and interest on the grocery bill and the dining out bill. Now you might ask “What if I don’t have a credit card?”. The best option at that point is to transfer all of the variable expense money at once to the chequing account.

Give adequate time – This is extremely important. You should always give yourself some extra time for the transfer to happen. The last thing you need is to miss a payment because you didn’t allow for enough time for your transfer to go through. Our financial institution requires one day to transfer funds from our savings account to our chequing account. On top of that it usually takes 2 business days for a bill payment to process. That’s 3 days but if you want the extra security then give yourself 5 days. For us, our mortgage comes out every second Friday so the money is always transferred to the chequing account on the Wednesday.

Always have buffer cash - Always have some extra cash sitting in the chequing account. We usually have $200 in ours. This is important if you have any miscellaneous or unforeseen expenses. For example we go to this breakfast spot that only takes cash so before we go we usually hit up a bank machine.

Have overdraft protection - This is your final line of defense. Mistakes can happen and the overdraft protection is your fall back plan. A small overdraft fee and some interest is nothing compared to a $40 dollar insufficient funds charge. As long as you don’t automate too tightly you will never have to use this.

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I’ve heard it over and over “The interest income isn’t worth the time to change accounts”. This annoys me to no end. With bank services like ING Direct and PC financial its no trouble to setup new bank accounts. Sure earning 2.7% interest isn’t exciting but it’s money for nothing. As well it’s better than earning 0.5% a year and then being charged bank fees causing reduction in your account balance. This year my fiancé and I made the following amount from our high interest bank accounts:

Joint Account – $227
Individual Accounts – $318

Total return – $545

In total I spent probably less than 10 hours managing our accounts and earned $545 dollars before taxes. That’s an hourly wage of $50/hr, which is pretty good. As time goes on I’ll spend less and less time looking at these accounts as I refine my account automation with automatic transfers. Some might say that we won’t be left with much after taxes but the key is that it’s something. If you walked by $300 dollars on the street wouldn’t you stop to pick it up? If you answer is yes than any sum of money you have should be sitting in a high interest savings account. The bank should be paying you and not the other way around.

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