Ever heard the famous quote "Cash is King"? It may be true to some, but I tend to think there is one true king of personal finances: personal cash flow.

It's understanding how your entire streamline works, from your income to the results you desire. It can look pretty dull on a spreadsheet. Luckily, I've got just the right visual to spice up this topic for you.

Let's max out your financial knowledge!

Building cash flow is a bit like growing a garden. You need water, sunlight, soil, and (more importantly) time. Each one serves a distinctive function to create one result together. With personal cash flow, you are just building your garden. These are your main ingredients:

• Income: How you plan to fund this garden
• Expenses: How to plan to spend on this garden
• Savings: How you plan to grow this garden

But seeing the entire process is one thing. To put this down on paper and sticking to it is another. So, where can you begin if you don't know how to start? While everyone's situation is different, one fun tactic can make this a lot easier:

What is the 50/30/20 Rule?

It's a simple way to map out your income stream. How much to spend? What areas to spend on? How much does it cost to grow it? It's organizing your net income (income after taxes) and allocating it into three categories:

​→ Essential Expenses ​

These are the expenses you NEED to pay. Imagine you lost your job and needed to keep enough cash afloat for several months. What are some of the costs that you know you must pay for this period?

Think of expenses like:

• Rent
• Utilities
• Groceries
• Internet

These things must be paid for to get through the next day. In the beginning, these are usually the bulk of your expenses.

​→ Discretionary Expenses​

Anything outside of a need is a WANT. These aren't necessarily "bad" expenses per se, but they are lower in priority than essential expenses.

For example:

• Shopping
• Dining out
• Subscriptions

These are more like the extras of your expenses—many of which you probably place a high value on! But when it comes to evaluating expenses by urgency, these are the ones people usually target when they want adjustments to their spending in the near term. Once you identify it, it can be a great way to evaluate your spending based on your values.

​→ Financial Goals​

What you don't spend is what you work to improve your finances with. These include:

• Building savings
• Paying down debt
• Investing in growing assets

These are how you continue to protect and build wealth over time. By including all three in an organized fashion, you're setting yourself to have an organized start.

​Increase Income, Increase Savings

Adjustments should be made as cash flow increases, especially when branching away from the 50/30/20 model. Why? Money that isn't saved translates into more expenses. As a result, you inadvertently increase your standard of living

-> Hello, lifestyle inflation

One interesting method to control the increase is to save more of their new income to avoid this mishap. For example, let's say you initially stuck to a solid 20% rate like the 50/30/20 rule. You want to save even more of that new income when you get a raise (for example, a $30,000 net raise). That means not just 20% ($6,000 net) but perhaps 30%-50% ($9,000-$15,000 net) instead.

Not only can you control the increase in the standard of living, but you can also increase your overall savings rate at a more leisurely pace rather than forcing yourself to cut back on your expenses!

That doesn't mean you shouldn't enjoy your money. However, creating a commitment is required if you're looking to get the desired results without disrupting your current lifestyle. You get the best of both worlds with this approach. Build with what you have and compound on your beautiful financial garden too!

- Max

‍