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Welcome to Alanis Business Academy. I'm Matt Alanis and this is Generating Positive Cash
Flow Part 2. In our last video titled Generating Positive Cash Flow Part 1, we reviewed several
tactics for generating positive cash flow by focusing on our cash inflows. If you missed
that video you can select the link above or access our channel and search under the playlist
Personal Finance. In this video we are going to focus on the other side of the cash flow
equation, cash outflows. By decreasing out cash outflows we can increase our positive
cash flow assuming our cash inflows remain constant or even increase.
Cash outflows represent a variety of different expenses. The most significant cash outflows
are fixed monthly expenses. Fixed monthly expenses must be paid regardless of cash inflows
and reduce your positive cash flow. Although some monthly expenses are usually necessary,
others can be trimmed or eliminated entirely.
The most common fixed monthly expense is a home mortgage or rent. These expenses take
up the largest percentage of monthly household income and thus represent the greatest opportunity
for reduction. Conservatively one should avoid purchasing a home that requires monthly payments
in excess of 28% of gross monthly income. Doing so leaves enough cash to cover other
expenses, while also increasing the likelihood that you maintain positive cash flow for the
month.
Lets say that you've already purchased a home and are looking to reduce your monthly expenses.
One possible solution is to refinance your mortgage. Refinancing creates a brand new
loan with new terms. You can potentially take advantage of lower rates and even extend he
term of your loan. Always remember that although extending the term of your loan will lower
your monthly payment you'll end up paying more over the life of the loan. As a result,
you want to way your desire to lessen your cash outflows with your desire to keep your
overall housing costs down.
Another way to reduce your mortgage costs is to sell your home. This removes that fixed
monthly mortgage expense and can give you the opportunity to downsize to free up cash
flow. Up the home is valued less then than the amount of your loan than you may want
to look into a short-sale, however this will likely adversely affect your FICO score and
the bank must agree to the sale price.
Outside of housing expenses, transportation expenses represent the next largest category
of fixed monthly expenses. Financing a vehicle purchase provides ease of acquisition, however
it also reduces your monthly cash flow since you're now paying principal and interest on
the vehicle loan. Paying off a vehicle loan early can help free up cash flow in later
months and save you interest expenses over the life of the loan. If your vehicle loan
consumes a significant amount of your monthly cash flow you may want to consider selling
it. You can use the sale proceeds to pay off a majority of the loan and acquire a vehicle
of lesser value. This will lower your fixed monthly expenses and generate more positive
cash flow for you.
In addition to looking at the before mentioned expenses you can also make a list of all of
your reoccurring expenses as well as review prior months bank statements. Keep an eye
out for any repeated expenses that can be reduced. Pay special attention to those small
expenditures that can add up rather quickly. These could be daily trips to a nearby coffee
shop, frequently dining out, or even music downloads. These expenses are easy to accumulate
since they're typically small expenses, however they can add up quickly.
Now this is by no means an exhaustive list so be sure to think creatively how you can
trim expenses and reduce your cash outflows. This has been Generating Positive Cash Flow
Part 2. If you have any questions or comments please be sure to leave them in the comment
box below and I'll do my best to get back to those in a timely fashion. Be sure to subscribe
to Alanis Business Academy for access to our latest videos and like/share this video with
your friends.
Thanks for watching.