How Does Your Money Move?

This is a guest post from Danny Iny of Firepole Marketing.

Are You Rolling Dice When Managing Your Money?

Really… how does your money move? Is it liquid, or is it solid?

You probably know the term “liquidity” as it applies to your assets – money kept in cash is liquid because you can spend it anywhere, and money kept in real estate is illiquid because you have to turn that real-estate into cash before you can trade it for other things that you might want.

That’s not what this post is about!

There’s another way that money can be liquid or solid, and that’s about how that money moves in and out of your bank accounts.

Usually, you start off with solid money, and over the course of your career it becomes more of a liquid.

This is important because if you don’t know how your money is moving, then you can’t manage it so that it moves in a way that allows you to pay for the things you want, at the times that you need.

But before we talk about managing the money, let me explain what I mean…

When you’re starting out, cash is a solid…

Most of us start off with our cash as a solid. It comes into our lives in chunks – this could be your allowance as a child, your paycheck, or even project fees if you’re working as a freelancer.

You get a chunk of money (hopefully a big one), and you hack bits off of that big chunk to pay for expenses as they come up, and you hope that another chunk of money will land in your bank account before the last one is all used up.

Further along in your career, the amounts get bigger, and they start coming from different income streams. At that point, cash is flowing in from various sources, and flowing out, too – it can be hard to even manage!

There are advantages and disadvantages to having money move as a solid or as a liquid – neither is better than the other. The really important thing is to recognize how your money is moving, because each form calls for different kinds of money management.

Managing cash that comes in chunks…

So let’s say that your money is a solid, which is generally the case when you have one major source of income. The chunk lands in your bank account every two weeks or month if you’re salaried, and every time you close a big project if you’re freelancing.

The trick with managing cash as a solid is that you’ve got to make that chunk last until the next one rolls in, and sometimes, as is the case with freelancers, you can’t exactly predict when that will be.

So how do you manage this kind of money? Simple; if your cash is regular (i.e. a salary), then try to schedule your expenses for the period right after it comes in, so that you don’t get hit with a big expense when your account is close to empty. If your cash is irregular (i.e. a freelancer), then try to spread your expenses evenly over the month, so that there’s never too big a hit at any one time.

Also, make sure to hack off an extra piece to go in a “rainy day” account. It can hurt to do it, but it’s gotta be done – put 10% (or more, if you can afford it) out of every incoming chunk of cash towards an emergency fund to hold you over if things get tight.

The real challenge is managing your cash when it turns liquid…

Managing cash that flows in and out…

When you have multiple streams of income, things get more complicated. If you’re salaried, then this might look like dividends from investments, or rental income from real-estate that you own. If you’re independent, then you might have multiple larger contracts paying you retainers, possibly supplemented by one or several product lines.

To make matters even more complicated, when you’ve got money flowing in like this, you’ve probably got it flowing out the same way, too – automated payments to suppliers and service provides, maybe even rents and salaries.

Have you ever heard someone say something like “I have to see if I have the money for that right now”? Odds are this person’s cash was in liquid form – with money flowing in and out at these speeds and volumes, it can be hard to keep track!

To avoid any problems when your cash moves like a liquid, you should try to match big influxes of cash with big expenses; so for example, Revenue Stream A pays your rent, which is due a week later, Revenue Stream B pays salaries, which is due a week after that, and so forth.

Many people start businesses because they crave the sense of security in having so much cash flying around, but the truth is that if you lose one or two big accounts, the cash stops flying in, but doesn’t stop flying out, so you can find yourself losing money at an alarming rate. That’s why putting money into a “rainy day” account is critically important.

The real key is visibility!

Whether your cash moves like a solid or a liquid, the key to managing it effectively is to have really good visibility about exactly what is happening with your money. This includes:

• How much money you have right now.
• How much money you have coming in, and when.
• How much money you have going out, and when.

A short while ago, Ramit Sethi published a post titled “Most people in debt don’t even know how much they owe” – the title says it all, and that is a truly scary thought – especially if you’re running a business!

It doesn’t have to be complicated, or require any elaborate software. I run a successful consulting practice as well as several online businesses and a social media start-up, manage investments and keep an assistant and half a dozen suppliers on staff, and manage the money side of it all with an Excel spreadsheet.

Just in case you don’t already have a system to track all of this stuff, I’ve included a cash flow spreadsheet that is all set for you to use – all you have to do is fill in the numbers, and you’re good to go!

Okay, over to you – does this jive with your experience dealing with money? Is your money more of a solid, or more of a liquid? Do you find one easier than the other?

Danny Iny is an author, strategist, serial entrepreneur, and proud co-founder of Firepole Marketing, the definitive marketing training program for small businesses, entrepreneurs, and non-marketers. Visit his site today for a free cheat sheet about Why Guru Strategies for Blog Growth DON’T WORK… and What Does!

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