Is cash really king?

04 Feb 2013

By Andrew Harrison

We often hear the phrase "cash is king". This phrase will have different meanings to each of us – particularly small business owners, someone saving for a home deposit, investors and self-funded retirees. However, I actually believe "cash flow is king"!!

It's clear that one of the keys to consistently increasing your wealth is to harness and deploy the cash you generate. We generate cash from many different sources such as our salary, business profits, investments, pensions, inheritances and selling assets. If you want your wealth to thrive and grow then smart decisions need to be taken.

When weighing up the most effective strategy, a skillful financial adviser can help you get the order right.

Step 1: Determine what you need (not want) to spend?

Hopefully your adviser is able to identify a surplus cash position each month and each year, and from here your choices are exciting! Having a large number of options can present a problem for some as we become confused by all the alternatives and either rush the decision or do nothing for fear of getting it wrong. It's exciting to discover what your cash flow is capable of and how you want to use it to help you.

Step 2: Define where you want to invest your cash flow?

Increasing wealth can be achieved in different ways, but surplus cash flow can help on a number of fronts, such as:

  • Completing a renovation
    Building your investment portfolio
  • Boosting your superannuation
  • Upgrading your principal residence
  • Investing in your business
  • Helping your kids buy their first home
  • Paying down your home loan and other personal debts
  • Accumulating assets for future education costs
  • Reducing your investment debt

Step 3: Compare and contrast each of your options so you have confidence to pursue your preferred strategy.

The beauty of your surplus cash position is that you can undertake any of these strategies. A harder task is to know which strategy to attack first and if it is aligned with your own personal preferences.

The exciting opportunity for all of us in this conversation is to have a critical mind to analyse and compare each of the options to ensure we make the smart decision. For example, someone on a lower marginal tax rate or different age demographic will benefit from a particular course of action versus another person on a different tax rate with different debts and risk attitude. The skills of a qualified financial adviser can balance the interplay of tax, timeframe, attitude to risk, happiness and legislation to ensure you are presented with the most appropriate outcome that you can have confidence in.

Harnessing your cash flow can open up a world of progress. Long live the king!

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