Our finances, cash & cashflow

Mutual funds have been the more popular of the two types of CISs, constituting more than double the number of unit trusts.
Kwadwo Acheampong

Years ago, Akwasi, a relative of mine lived with us. He had just graduated from Legon and had begun working with a state organization. He was as soft-spoken then as he is now, and a very agreeable fellow.

One evening, Akwasi fell ill. I can’t remember what the cause was but he had a very acute stomach ache. My dad immediately thought about taking him to Korle-Bu for diagnosis and treatment. It was about 6:30 pm when we left home and already dark when we arrived there. We were told to go to the Polyclinic instead. At the Polyclinic, a stretcher was brought to send him in. A nurse then enquired what the problem was. My father explained that my cousin (Akwasi) had a very bad stomach ache which had begun earlier that day. The nurse retorted, ”And you chose to stay in that pain for all this while?” It was amazing how she concluded that someone would be in pain and choose to bear the pain for such a lot time instead of doing something to get a remedy. Truth is, we had gone through a lot before we appeared before her. The commute to Korle-Bu from home had been quite long and we had initially gone to the teaching hospital before being asked to go to the polyclinic instead.

What I Learnt

There are lessons I glean from what I call ‘the Akwasi episode’. Indeed, lessons with connection to our finances, cash and cashflow. Many times, it is a wonder why we seem to hold on to expenses without doing something about them. Why do we have expenses sometimes piling up? Is it an intentional indulgence in procrastination? On every day bills that can even be envisaged: why do we sometimes find ourselves allowing bills to build up without paying them off when they fall due? Is it that we really ALLOW them to pile up?

Certainly, in most cases, we don’t. No one in their right senses would want expenses which have to be dealt with grow and eat away all efforts to create wealth. Of course, in business, it is useful to finance your operations with finances and activities of others, where interest costs are not considered. It is all about cash and cash flow. We prefer to purchase on credit and stagger payments yet we would rather receive cash when we sell goods and services. We wait till close to the middle of the month to settle statutory payments like Tiers I and II pension payments and taxes. Years ago, as a young employee, I was tasked to supervise construction workers. I hired a concrete vibrator machine for them and when they were done, I requested for cash from the accounts section to return and pay for the machine’s use immediately. Strangely, I was told I appeared to be too much in a hurry to pay my creditors and that it was not appreciated! Nothing made sense at the time, of course, until I was introduced to the time-value of money and the importance of cash and cashflow.

Cash, the King

The assertion, ‘cash is king’ is very true for our personal finances and investments. The worth of money is much more evident when it is in motion than when it sits. Cash on the move accomplishes many things. In physics, cash is like kinetic energy, wealth is like potential energy. Kinetic energy produces work. Potential energy stores work. Let’s look at this, for instance. Saap receives contract payment for a consulting task she submitted. Great! Time to visit the Grand Oyeeman and drive away with the Range. She makes payment and the keys are handed over to her. As she rolls out, dark Ray Bans on, sun-roof opened, she reflects: she had built wealth through her consulting work. Potential energy. She got paid (cash transferred to her bank account) and she also transferred it to the dealership. Kinetic energy. The dealership then pays the shipping company, Maersk, for delivery of Land Rover and Jaguar cars, parts and accessories. The shipping company purchases marine heavy fuel oil (HFO) from AI. The energy company, in turn, pays its tanker drivers and other field operations workers. The money keeps moving around getting more and more things done as it moves, and Auntie Akweley the banku seller will get hers for all the banku and hot pepper she had sold to the workers that month.

Back to the build-up of expenses. When expenses are paid for, credibility is built for goods and services to move round in the immediate future, psychological relief is achieved and cash can move to get things done to keep everyone happy. Therefore, we all would usually want to pay for expenses early enough. The problem is, cash does not move to us soon enough, often enough or in adequate quantities. Cash flow is never enough. Cash flow is non-uniform. Additionally, cash flow may not be easily predictable. Invariably, expenses become due and get unpaid. They accumulate until a significant inflow arrives to care of it.

Cashflows and Controls

For regular workers, the cash inflow (wages, salaries) is usually predictable. There may be other sources of income, not predictable or not regular. What about the cash outflows?

It is advisable to have our outflows as predictable as possible and as manageable as possible. Watch ‘commitment’ expenses which are difficult to break from: school fees, personal loan repayments, mortgage repayments, hire purchase payments for consumer goods, rent, utilities, etc. These are expenses which need controlling. Before we sign up for any, it is helpful if we ensure that each one does not constantly over-stretch us. A good examination of the inflows should advise us. It would be tough enrolling our children in a twelve thousand cedis per term school if our inflow each month is just three thousand cedis. It would be ill-advised to take a personal loan to purchase a consumer item when the loan repayment amount is prohibitive. Without careful consideration, all these costs, when they are committed to, can give us stress. Additionally, they can take away all probability of us retaining a positive net cash flow which would enable us to invest.

Very tough decisions have to be made by each of us from time to time. As we aspire for and actively seek financial independence, we should make the attempt to match our cash inflows with our cash outflows. We can better our cash inflows but it may not be easy and it may be out of our control for a period. Doing extra jobs for multiple and larger aggregate income is the way go, usually. It is the outflows that we can determine how large and frequent they would be. That is where we can exercise greater control and careful consideration. Inflows can then target expenses for adequately prompt payment.

For instance, ‘side relations’ can be very expensive and can rob us of the chance to set aside money in investment. For men especially, the costs of ‘maintenance’ for the side-chick (and any children in the ‘side relation’), ensuring stealth like a CIA operative, and ‘reparation’ to their spouses when their covers are blown may make the often-time ‘high-risk, high return’ venture of a side relationship not worth it and at variance with wealth building.

Towards Wealth Creation

In all of these, the aim is to have a steady and significantly-sized net income that enables us to invest and secure our finances. The key is to try to diversify and broaden our income sources. That way, we can increase our cash inflows. Additionally, we should control our outflows by primarily ensuring we commit only to a level of expenses that help match the cash outflows with the inflows. A careful and steady watch of our outflows with the view to keeping them harnessed (instead of being left all over the place) is essential. Expenses would, therefore, not pile up and go unpaid for a long time. With a healthy, positive net cash flow, investing to create wealth would be facilitated. Yes, it is possible! And that is the business of OctaneDC…wealth creation and financial independence. Connect with us today.

About the Author          

Through his writings Kwadwo has discovered his love and knack to simplify complex theories spicing them with everyday life experiences for the benefit of all. The Head of OctaneDC Research, Kwadwo Acheampong, has over a decade experience in fund management and administration, portfolio management, management consulting, operations management and process improvement. Feel free to send him your feedback on his article. Email:  [email protected]

Cell: +233244563530


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