You’ve heard the expression “cash is king”? Well, even more to the point, cash flow is king. You can have one or two or three million dollars saved, but if you don’t have a good, well-calculated, solid and proven system in place to disburse that money, usually one of two things happen:
1. You spend money at a rate that far exceeds your limitations, because you haven’t taken the time to understand what those limitations are. Before you know it, you’re in trouble. To most people, a million dollars is a lot of money. It’s treated like an endless pit.
Now, maybe you’re thinking “not me, I’m not careless with my money, I would never do that,”—and hopefully, you’re right. But most people have never had a million dollars sitting in their hands. It can be a very dangerous situation. Do you have any idea what it takes to be sure that money lasts the rest of your life, and the life of your spouse or significant others?
You could partake in the industry standard idea of withdrawing 4 to 5% per year. That’s fine. It will work—unless, of course, you lose half of your portfolio during a market draw-down because you were inappropriately invested for distribution. Now you’ll have to take 8% or 10% of that portfolio just to get the same paycheck—or continue to take 4-5% and live on a lot less.
2. The other extreme is that you’re so overly cautious that you’re afraid to touch a nickel. This attitude presents its own set of problems—the biggest of which is allowing fear to guide you. I have met with people so frozen by their fear of running out of money that they wouldn’t allow themselves to reap the rewards of all their years of hard work and sacrifice. This is sad.
If you end up in either of these scenarios, your money is controlling you. I have witnessed both extremes more times than I can count over the years. It’s not pleasant to be in either situation.
There is a third way, of course—and that is balance.
While I was raising my children—and I’m sure if you raised children, you’ll understand this—there were times when they weren’t doing well in some area of their lives. More often than not, it was school. A report card would come home and as I read it, I could see that their grades had suffered, falling beneath what they themselves had proven to be capable of.
I would explain to them that they had lost balance in their lives. I told them, “You cannot be hanging out with your friends all day and expect to do well in school. You need some time for studying, some time practicing your sports or your musical instruments, and some time for your friends. If you spend all your time with your friends and no time on the other things, then the other things will suffer.”
With money, you need to find a way to balance spending too much with not spending any at all. You cannot frivolously spend and you cannot hoard money out of fear; either way some area of your life will undoubtedly suffer.
You need to create a plan and road-map that will create that balance for you. If it’s done well, it will act as a “permission slip” to live comfortably, within your means and without worry. That set of instructions will be your income plan blueprint.