Increasing Cash Flow for Investment Purposes

There are only two ways to impact cash flow: you either have to earn more money or manage your expenses better. I am always a proponent of making more money but what happens if we dissect the expense side of the equation and find ways to increase our cash flow by reallocating some of the expense to savings, investing and asset accumulation. Furthermore, what does that change mean to the average American’s finances over periods of time leading up to retirement?

The average American budget consists of a typical breakdown of housing, transportation, food, healthcare, utilities, entertainment, clothing, education, miscellaneous, etc. What if small changes are made to a few parts of the budget. Let’s take a look…

Eat Out / Take Out

Average American spends $192/month on eating out, whether that be in restaurant, take out or delivery. If a spend/save negotiation takes place with yourself concerning this part of the budget and there is a 50% reallocation from spend to save, that means there is still some money for this expense but now the other 50% is going to savings and investing.

Why does this matter. Small habit changes can lead to big results. That $96/month we reallocated invested and growing at 6% compound can lead to 10, 20 and 30-year accumulation of the following amounts:

10 Years = $15,356.20

20 Years = $42.684.89

30 Years = $91.626.41

Lottery Tickets

Average American is buying lottery tickets on a continual basis. There is a saying that is cost nothing to dream, but in this case, it actually does. Think about it, when was the last time you remember winning something significant from the lottery? What about a close friend or relative? Best to put that money away and build yourself your own jackpot over time.

Typical American spends $74/month buying lottery tickets. If we do a real self-inventory here and realize we are just throwing money away, an 80% reduction from spend to save means there is still $14/month for the lottery but now $60/month is going to savings and investing.

Once again, this matters, and growing at 6% compounded over 10, 20 and 30-year accumulation of the following amounts:

10 Years = $9,597.62

20 Years = $26,678.05

30 Years = $57,266.50

Subscription Services

Be honest with yourself, can you even name all the subscriptions you are paying for? Most people cannot and that means there is usually found money here. Reviewing both merchants you pay as well as subscription solutions providers is a great place to start. If you are not using the service or do not even know what it is, put it on the chopping block for the spend/save negotiation.

Average American spends $237/month on subscription services. If a spend/save negotiation takes place and 40% is reallocated from the subscription expense to savings and investment, that means we have moved $95/month and growing at 6% compounded over 10, 20 and 30-year accumulation of the following amounts:

10 Years = $15.196.24

20 Years = $42.240.25

30 Years = $90,671.96

Coffees and Lattes

Most people drink coffee. However, there is a difference between coffee house purchases like Starbucks versus homemade and prepared by you. That is going to be the most logical and easiest way to squeeze this budget component. This is not about going without, but instead changing consumption behavior to save money.

Average American spends $68/month on individual coffees and lattes. If there is a 50% reduction through a spend/save negotiation, there is still money for this but now $34/month is moved to savings and investing and, again, growing at 6% compounded over 10, 20 and 30-year accumulation of the following amounts:

10 Years = $5,438.65

20 Years = $15,117.56

30 Years = $32,451.02

Cumulative Effect

Minor changes in some of the way we spend money can change our financial future more than we realize. In the above example, the average American was able to reallocate $285/month from expenses to savings and investing. What does the cumulative effect of this change look like compounded at the illustrated 6% for 10, 20 and 30 years:

10 Years = $45,588.71

20 Years = $126.720.76

30 Years = $272,015.89

Our financial future is created through our daily and recurring habits. Whether those habits are good or bad, they are paving the way. Learning to reallocate money from expenses to savings and investing through a spend/save negotiation with yourself is a great way to make a small change now that will add up to a big result later.