Cash Flow is Money in MotionCliff Broetz, CSA, RDB
I recall a moment years ago, sitting with my brother-in-law, when his son entered the room and said “dad, I need some flow”. Dad calmly pulled out his wallet and handed over a $20. Cash flow in action. Positive for one individual, negative for the other. I know which end of this equation I prefer – my father would have turned the garden hose on me as that was his idea of ‘flow’ when I asked a similar version of the same question.
The difference between cash and cash flow is the word flow. It is not static.
Simply put cash is an asset. It is liquid money that belongs to you, that you intentionally keep in your bank savings account and you can tap it when you need to. Cash is static. The difference between cash and cash flow is the word flow. It is not static. Paycheques are an example. Salary is cash flow in but before it arrives cash has gone to CPP and EI, cash flow out. Money in motion. Distributions (Dividends/Interest) paid to you from your holdings at Precision Wealth Management are cash flow out of an underlying business (mutual fund) and into your bank account. I think you get the point.
When our clients sit with us and ask if they have enough for retirement, this is largely a question of future cash flow. Cash inflow, from investments and pensions, less cash outflow for expenses and life, equals net cash flow. And unlike the current Canadian government, we want net cash flow to be positive or at least, balanced. To answer this question, we really need our clients to answer questions about their cash outflow – after all, if you don’t know what you spend today, you can’t know what you’ll spend tomorrow. To better this understanding we have provided some helpful tools on our site. So, enhance your knowledge of cash flow and save having cold water thrown on your finances.