NewRetirement Interview with Keith Whelan on Wealth vs. Cash Flow

The editorial team at NewRetirement recently reached out to Keith Whelan to discuss how to build wealth and leverage cash flow to reach retirement sooner.  NewRetirement is a leading destination site dedicated to helping people who are concerned about retirement find the information they need to create a secure future for themselves.  Here is the interview with Keith.

Many of us want to be wealthy, but few of us realize what it takes to get there. That’s why Keith Whelan founded Cashflownavigator, a site that lets you track where your money goes and gives you the tools to redirect it. He was kind enough to speak with us about how to do more with your money than spend it.

Why do people so often confuse wealth and cash flow?

I think it’s not so much confusion as a lack of awareness of cash flow and its role in managing your personal finances and retirement planning. Most personal finance resources and personalities focus on building wealth (your net worth), but ignore monthly cash flow. Wealth is important, but there is good wealth and bad wealth. Bad wealth increases your debt and creates negative monthly cash flow, but good wealth generates positive cash flow. Once you understand the relationship between the two, you can prioritize your financial opportunities and grow your net worth in ways that maximize positive cash flow.

Where do we start when looking at our cash flow?

I like to frame this in terms of different stages of the financial life cycle. Pretty much all of us start out in the Debt Accumulation stage. To move out of this early stage and into Debt Reduction, look for ways to reduce monthly expenses. That will free up some money to apply towards paying off debts such as a car loan or outstanding credit card balances. Once the first debt is paid off, it frees up more cash flow that can then be applied to repaying another debt. And so on. Doing this moves us from Debt Accumulation to Debt Reduction. As you make further progress, you can then start to use your freed-up cash to invest in assets that not only increase in value, but also generate positive cash flow. Doing this moves you closer to the final stage, Financial Independence.

How do we spot little things that might, over time, be draining our cash reserves that could instead go to retirement?

There’s an expression: “You can’t manage what you don’t measure.” So I would suggest measuring your monthly expenses individually but also totaling them up. Then set a goal to reduce that monthly total expense by, say, $300.

To achieve that goal, yes, look at the little things; but I think it’s even more important to look at the few biggest contributors to your total monthly expenses and attack those first. That way, you’ll get a bigger bang for the buck by focusing on a few high-impact items rather than trying to micromanage dozens of smaller ones.

Why is it so important to see net worth, budget, and cash flow in one place?

It’s more difficult to manage multiple, separate financial documents than a single integrated one. Also, by integrating them you’ll have a better understanding of their relationships. You’ll be in a better position to see your overall financial situation holistically.

How can we reconcile our cash flow with our retirement planning? Where do the two meet and why?

As I mentioned, wealth and cash flow are both important. You want to grow your net worth in ways that maximize your monthly income (from sources other than salary). And ideally, you want to create a number of cash flow-generating sources during retirement.

To accomplish this, I like to start with the end goal and work backwards. For example, in our household our goal is to have 7 sources of passive income (positive cash flow) in retirement. My wife and I are fortunate enough to have pensions from our previous employers, and we will both receive Social Security retirement payments. That’s four. In addition, we have a rental property that is generating positive cash flow; and we have 401(k), IRA and other retirement accounts that will generate monthly income. That’s six. I also own a business, and the plans are for that to be a seventh source of income.

That’s just one example. Your circumstances are probably different, but the principle is the same: set a retirement goal of having a predetermined number of cash flow sources, and then work towards achieving that goal.

What’s the future of retirement planning in your view?

Right now, with the exploding number of financial information sources and so many providers of financial products and services, I think there’s an opportunity to help people sort through it all and boil down the key concepts into something that’s simple and actionable. Also, rapidly advancing technology and new media have created opportunities to provide more effective tools to help us actually take action and achieve our retirement goals.

For more information and resources from NewRetirement, including retirement strategies, calculators, news and advice, visit their site at www.newretirement.com.

Why Taking Social Security Could Cost You Thousands

image - social securityI recently attended a weekend barbecue with some neighbors, and at one point the conversation shifted from the usual topics — family updates, local news, sports, and politics — to retirement. Strangely enough, it was raised by a friend’s daughter, Barbara, who is in her early 30s. I was a little surprised (but encouraged) that she was already doing some retirement planning at that age.

Barbara is a bright, hard-working human resources manager with a promising future, but after 10 years in a challenging work environment, she said she was beginning to feel a little fatigued. That’s certainly understandable. She and another 80 million millennials have had the misfortune of joining a workforce that’s experiencing some major disruptions. For most workers, America’s recent economic restructuring has led to less job security, lower wages, fewer benefits, and longer hours. That’s not exactly a recipe for long-term optimism if you’re a thirty-something.

With this in mind, it didn’t take long for me to realize that Barbara raised the issue of retirement not because she was interested in long term financial planning, but instead out of sheer frustration. Barbara’s question was, “What is the earliest age I can begin receiving my Social Security retirement benefit?”  To read the full article   Click here

This One Thing Will Get You to $1 Million (Tax Free!)

image - 1 million dollar billIn what seems to be only a few short years the volume of information and advice on financial issues has exploded. Suddenly we’re surrounded by advice, often in the form of lists containing 10 (or 25 or 50) things you can do to help solve a particular financial problem.   Where do you begin?  On what things should you focus your efforts?

I’d suggest starting with the end in mind – with your ultimate goal – and let that guide you to the highest impact, and therefore the highest priority activities to help you achieve it.  For most of us the end goal is financial independence.   Financial independence can be defined in many ways, but most would agree that in general it requires accumulating enough wealth to no longer rely on income from a job.

Okay, here’s where focusing on the highest impact activities comes in.  For most Americans only two financial items generate around 80% of their wealth: real estate and retirement savings.  Let’s tackle one of them, retirement savings.  If you get that one thing right then hundreds of other, lower impact activities won’t matter much.

Here’s how.   Read the full article at http://www.wisebread.com/this-one-thing-will-get-you-to-1-million-tax-free

This One Mistake Could Delay Your Retirement by 10 Years

image - shocked senior couple delayed retirement by 10 yearsA while back, during a housing boom (remember those?), I watched a TV news segment about homeownership. The reporter was interviewing a young married couple shopping for a house and the wife said: “My parents told me to buy the biggest house you can afford, so that’s what we’re doing.” After all, her parents probably saw the value of their home rise to many times its original price, eventually becoming one of their biggest assets — just in time for retirement.

In fact, on average home values do rise — by about 4% per year, keeping pace with inflation — and over the long term this growth can be substantial. So on the surface, this “buy the biggest” strategy seemed to make sense. A bigger purchase price must lead to a bigger ending price, right? Maybe so, but something bothered me about this advice; a piece of the puzzle seemed to be missing, but I just couldn’t put my finger on it at the time.   Read the full article

11 Famous Failures That Led to Success (And the Lessons They Teach)

image - success from failure - coffee cups and crumpled paper

Have you ever noticed how focused we are on winners?  Most of our time and attention is devoted to people who have already succeeded – entertainers who now fill the stadiums or walk the red carpet, influential politicians, famous CEOs.  But that’s merely the end of the story.  So much more can be learned from the failures that got them there.  Failure provides some of life’s most enduring lessons.

One part of our culture where failure is not only accepted but is actually looked upon favorably is in business, among entrepreneurs.  To entrepreneurs failure is worn like a badge of courage.  It often leads them to greater insights and solutions and, with a healthy dose of persistence, eventual success.  This helps to explain why the United States continues to lead the world in innovation.

Here are 11 examples of initial failures – and the lessons learned – by entrepreneurs and others who ultimately achieved great success in their fields.     Read the full article at:  http://www.wisebread.com/11-famous-failures-that-led-to-success-and-the-lessons-they-teach 

Want to See How You’re Doing Financially Compared to Others Like You? Use This Tool To Find Out.

image - hugging a green paper dollarHave you ever wondered how you’re doing financially compared to others?  If you’re like me, it’s pretty hard to pass by those articles that show the average earnings of U.S. workers by occupation type.  Usually my first thoughts are:

– Am I doing better than others in my field?

– Which occupations tend to pay more?  Which pay less?

But is salary the best measure of how well you’re doing financially?  It certainly is a good, quick measure of how much money you’re taking home at this time in your life, but isn’t what you do with that money even more important?

Case in point: Our oldest son recently graduated from college and was fortunate enough to land a real job in the education field.  After six months or so he complained that some of his other friends were making a higher salary than him.  So I asked, “What are they doing with it?”  Hmm.  That one caught him off guard.  Turns out tat our son has a tidy (and growing) amount stashed away in savings and even stocks.  His friends don’t.

So maybe adding up your savings and investments and the other things you own – your assets – is a better measure of how well you’re doing.  After all, these are the things you’ve acquired over the years with your salary.  But don’t forget about the flip side – the debts, or liabilities, associated with some of those assets.  Things like education loans, car loans, credit card debt, and mortgages should be part of the equation, too.

In fact, the full equation is:  ASSETS – LIABILITIES = NET WORTH

Net worth measures your wealth, and that’s an even better measure of how well you’re doing financially than your salary.

Curious to see how wealthy you are compared to others like you?  Use this tool to find out.      Read the full article at:  http://www.wisebread.com/its-10-pm-do-you-know-where-your-net-worth-is

 

Wealth and Cash Flow Lessons from Donald Trump. Will You Be an Apprentice?

donald-trump For most people the name Donald Trump conjures up many images. The hair. The pout. The Tower.  The casinos. And, of course, “The Apprentice.” He is certainly one of our culture’s most recognizable personalities, and since the 1970s he has accumulated enormous wealth.

But has that wealth made him financially independent? Not necessarily, at least not until recently. To see why, let’s take a brief look at how his financial investments and priorities have evolved over the years.  Read the full article at: http://www.wisebread.com/this-is-how-donald-trump-builds-wealth-and-you-can-too

7 Habits of the Financially Successful

 This article,image - woman and piggy bank written by Keith Whelan, was recently posted on Wise Bread’s personal     finance site.

If you think about it, achieving success in some of our most important life activities requires two key ingredients: Knowledge + Behavior.  Knowledge by itself isn’t enough; knowing what to do only gets you halfway there…you also need to follow through by taking action.

Take a job, for example.  On paper I might be an expert at my profession.  Very knowledgeable.  But if some aspects of my behavior are lacking – say, weak organization or communication skills – and they lead to poor or failed execution, then my chances for rapid career advancement are slim.

The same holds true for financial success.  There’s certainly no shortage of information and advice on managing our finances.  But what are the behaviors that contribute most to turning that knowledge into successful results?  A good place to look is among people who are financially successful.    Read the full article at: http://www.wisebread.com/7-habits-of-the-financially-successful

Use the “80/20 Rule” to Focus on Your Big Financial Opportunities

80-20

This article, written by Keith Whelan, was recently posted on Wise Bread’s personal finance site.

A number of years ago, when I was working for a big company, we had a team of people working on a project with a fairly simple goal: to keep our customers longer.  I knew someone on the team and I remember asking repeatedly – for over 2 years – how things were progressing.  The typical reply was “Oh, this is very complicated.  We’re trying to classify every customer and predict when they are likely to leave us.  Once we do that we will have to find out why they are likely to leave us.  And then….”  That’s when I usually changed the subject.

Needless to say, the project was never completed.  All that time and effort wasted.  I suggested to the colleague, “Why don’t you just ‘80/20’ it?”  That is, first focus the effort on just the relatively small number of customers who generate the vast majority of profits for the company and deal with the remaining, less profitable customers later.   In fact, for most companies 80% of profits do come from only around 20% of its customers.

I like the 80/20 Rule because it can help us manage things more effectively.  Things like our finances.  Focusing on just a few high-impact assets and liabilities, and the cash flow associated with them, can pay handsome dividends.  On the other hand, if you spend all or most of your time trying to micromanage hundreds of smaller daily expenditures…   Read the full article at: http://www.wisebread.com/use-the-8020-rule-to-maximize-your-financial-opportunities

2 Things You Must Know Before Making a Major Spending Decision

image of split road to financial freedomThis article, written by Keith Whelan, was recently posted on Wise Bread’s personal finance site.

Most would agree that successfully managing your finances is near the top of the list of important things to do in life.  In fact, for most Americans only two other things, family and health, are more important.   But how do you define success?

Without a clear and measurable definition of financial success, like Alice in Wonderland you risk falling through the looking glass and losing your way.  Or as George Harrison paraphrased the book’s author: ”If you don’t know where you’re going, any road will take you there.”

So, what should your financial goal be?  And what’s the best road to get you there?

Read the full article at:  http://www.wisebread.com/2-things-you-must-know-before-making-a-major-spending-decision

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