Connect To Your Cash Flow

By February 4, 2020Values


I can’t tell you how many people get a look of panic, as if they’re ready to run for the hills, the minute I utter the word “budget.” I sometimes ask them—partly so that they won’t flee—to play a little game and tell me the immediate word associations that come up. Common responses include: hard, cold, restrictive, demeaning, impossible, inflexible.

The solution, I’ve found, is to change the nomenclature—and the approach. How about calling the way you manage your cash flow “values-based spending.”

And here’s how a values-based spending game plan works:

Begin with your monthly net income–what you deposit into your account each month.

Ok, so that’s the easy part. Now make a list of all debts or obligations (mortgage, rent, student loans, car payments, carried credit card debt, etc.).

If you’re carrying credit card balances, your first job is to get them off the books by focusing on the quickest payoff possible. Credit card debt is a signal that you’re living beyond your means; the exception to this is an unexpected emergency or medical issue that forced you to use credit. Getting your debt paired down is necessary in moving forward to values-based spending.

Subtract your monthly debt from your monthly income.

Take the balance left and divide it up by your remaining expenses and savings goals.

The first level of costs is expenses that are fixed, or not subject to wide fluctuations. These include:



Utilities (electric, gas, phone, cable)

Insurance (homeowners, health, umbrella, life, disability)

Looking at these items, begin to examine whether you can control any of the costs. For example, can you increase insurance deductibles to save premium dollars? Can you shop for more cost-effective utilities? Are you getting value for your dollars? This is the question you need to ask in every instance.

Now answer one big question: What is most important to you, and what are you doing to get there?

The answer here is your answer, no one else’s. It’s what you value most. For some the most important thing might be to accumulate dollars for retirement, education for your children, vacations, purchase of a home, provide aid to a parent or to give to charity.

It’s your values paired with a plan of action to move you closer to your goals.

The fact is, most people have more desires than resources, so making choices is a reality. Your remaining monthly dollars after the first level of expenses can be applied first to your key goal, then to other costs that are more discretionary.

At each level, you want to examine your choices and decide their value relative to the importance of your goal. If you pay for many of your purchases by credit card, look at the last six months of statements and apply a value number to each line item.

Use a 1-10 scale. If something is a 10, then it’s of the highest importance. If it’s a 1, or 2 then it’s an expense you don’t truly care about, so you can subtract it from future purchases and add the money to something more meaningful. Threes and 4’s are probably ones that can be eliminated or greatly reduced.

The 5’s-7’s might also be things you can scale back. Your 8-10’s are the items you most value. For example, I have clients who greatly value buying their produce and meat from organic and sustainable sources. Their costs are greater than if they bought from their local markets, but it’s a 10 to them. They found the money to support their values by cutting the cord from the cable TV company.

This method of looking at spending vs. values is very effective provided you approach it with some rules, especially where couples are involved. The danger comes into play when one partner decides the values for another.

I remember one couple where the wife asked me to tell her husband that he was spending too much on Amazon, while he asked me to tell his wife she was spending too much money on her hair and makeup. That is definitely not my job.

Rather than staging a clash of values in your advisor’s office, set rules up front. Here are nine important rules to follow:

  1. Agree on the goals first. What do both of you agree is your highest value?
  2. No judgments or criticisms.
  3. Begin with the 1’s and 2’s.
  4. Celebrate and appreciate the progress.
  5. Test the impact of just the decisions.
  6. When there’s a difference of opinion, ask questions. Such as, “Is there another way of getting what you want at a lower cost?”
  7. Listen intently to each person. Use The 7 Habits of Highly Effective People author Stephen Covey’s approach: “First seek to understand, then to be understood.”
  8. Agree to a specific time for the discussion. It should be when you’re both fresh. Trying to have these conversations when you’re exhausted is laying the foundation for disaster. And set a time limit.
  9. Be willing to test changes without expectations of perfection.

As you shave or eliminate costs, you can drive your resources toward your most important goals. This is a dynamic process that will change as your situation changes.

Don’t forget the basics of maintaining a rational emergency fund in case of unexpected conditions, being mindful of the job market and overall economy, family changes and alteration of your goals. The old saying that the only thing constant is change should be held high in your thinking.

But as you’re getting connected with your cash flow, throw away the painful idea of living on a budget, and think instead of how your spending reflects your values. It’s a mindful approach to your money and financial security.