The Household CEO: Protecting Your Cashflow

Ever known anyone who was great at business, but stunk at personal finance? I’ve often wondered why more people don’t operate their household finances in the same manner they operate their business.

Of course, the reverse of that is true as well. I have known quite a few business people much more willing to spend company money than their own. In my opinion, that is just as bad, because someone has entrusted you with those earnings (shareholders, business owners, etc.) and it is your responsibility to be a good steward of it.

I digress.

Over the years, I’ve tried to implement this approach in the Frugal household. One of the things I’ve been most adamant about is protecting our cashflow. That is, I try to avoid entering into arrangements that could offset our future income. I take this approach for a variety of reasons.

1. Future income is not guaranteed. Just like in business, especially a seasonal business, there is no guarantee of future cash flow. Contracts can be canceled. The local economy can tank. Customers’ appetite could change for your product.

2. Increased monthly obligations rob money to set aside for growth. Just like a business likes to reinvest a portion of their profits to grow, I like to “reinvest” a portion of our income into income-producing assets: dividend stocks, and eventually rental real estate.

3. The higher my monthly obligations, the more I have to work. By paying off our mortgage early, refusing to add new debts, and living frugally, we are hopeful that we can retire earlier than most people because we won’t need as much investment income to cover our basic living expenses.

Skip Toys and Luxuries, Unless You Can Pay for Them

Ever hear the saying, “He who dies with the most toys wins.” Maybe so; unless he also dies with a lot of debt for those toys.

I don’t begrudge anyone for wanting to collect a few toys along the way, but I do think it’s best to acquire them with cash, rather than obligating a portion of your paycheck over the next 60 months to pay for them.

This means you may have to:

  • Drive an older car until you can pay cash for a newer one.
  • Not trade up in house, but stay put and pay off the one you’re in.
  • Buy modest gifts for friends and family for Christmas, rather than maxing out your credit card and struggling to pay it off before the next Thanksgiving shopping season.
  • Take one or two reasonably priced vacations each year rather than a lavish get-away every other weekend financed by American Express.

Again, nice vacations, cars and houses are not necessarily bad things. It is the debt attached to them that steals from your future paychecks.

Some will say that debt is a tool to acquire these things, and in some cases their values do go up (then again, maybe not, as we’ve experienced with housing lately). However, for us the debt represents added risk, and we are all about reducing the amount of risk exposure in our lives.

Bottom line…I’d rather own my stuff than it own me.


  1. I agree.
    Eliminating debt takes the worry out of your life and reduces stress.
    If you don’t get more toys with credit, and stay out of debt, you will be more relaxed, and enjoy yourself more than if you did have the gadget you think you need.

  2. I went through my budget a couple of years ago and eliminated as many recurring expenses as I could – magazine subscriptions, cell phone contracts, cable bills, lowered insurance premiums, etc. It has helped my cash flow a lot and I have been able to save more. I only pay cash for vacations now and don’t use credit cards except for rare occasions.

  3. Couldn’t agree more. Houses are where a lot people make a HUGE mistake by buying way too much. Come on, we don’t need rooms for every kid, every pet, plus an in-law suite. We need to be buying modest sized houses that we can pay off in 10 years or less. If not, there’s nothing wrong with renting.

  4. I love the “future income is not guaranteed line.” It’s such a mistake that both businesses and individuals make on a regular basis.

    I don’t know if I’m lucky or unlucky to have worked in an industry with a lot of volatility and layoffs, so I’ve always have job insecurity on my mind. I think overall, it’s been a good thing for me to get scared once in a while that the worst may happen.

  5. I’m 61, still have a good job, thank God. After the 2008 crash, I got serious about deleveraging, another word for paying off debt. I had a LOT of debt. I started by brownbagging my lunch, keeping my old car, cutting down to one vacation a year and watching my expenses on that. We eat home more often, out a lot less. I drive a 2003 Honda Accord, 130,000 miles, paid for. I bought a new car for dear wife last year, with cash. We now have no credit card debt, and I have managed to reduce our home debt to 150,000, and the home is worth about 225,000 (was formerly worth 375,000). I target keeping $10,000 in checking as my emergency fund, and the excess goes to pay down the mortgage.

    Do I feel deprived doing this? Not at all! We enjoy life, we golf a lot, we sit on our deck or our porch and enjoy the morning with a cup of coffee. What more do we need?

    I realize the connection between my debt, and being a slave to my job. Too bad I realized this so late, but better late than never. Every dollar I pay extra on my mortgage gives me a good feeling, of being more free from the tyranny of a job.

  6. Jason – Point #1 is so true. Future income is not guaranteed. It scares me when I see people living paycheck to paycheck because of the payments each month on all of their toys.

    We’ve worked hard to put a good chunk of money in savings to give us a cushion in the event that either of us lost our jobs.

  7. Hi guys 🙂

    Seems like people should ‘get’ that their jobs and income aren’t secure…given the current employment climate, and yet you *still* see people buying cars and such on credit! I think a lot more people are waking up to the economic reality, but the majority still lives in Disneyland. I guess its because MSM still talks like the US is going strong and that buying stuff (whether or not you can afford it) is going to help us out of this depression.

    Good post—-if only they would put tips like this on MSM 🙂

  8. I’ve noticed that many of the toys people buy sit idle most of the time. They could save a lot of money by renting them when they are actually going to use them. This also avoids the costs and hassles of ongoing maintenance.

  9. Never been in debt…yes, never been in debt! I had strong lessons imparted upon in childhood that asking for money is damn bad thing. Till date I believe borrowing money is a sin, it’s kind of Hindu ideology, most of you might not be familiar with.

    For businesses, it needs enormous amount of money, they can borrow or else business will not run. Personally we don’t need money beyond our means! If I can’t pay off now I don’t deserve it, as simple as it sounds! You people got it?

  10. So true! My husband and I concentrate on our necessities first, saving for the future second, and we have fun with the rest. It allows us to really enjoy the extras since we don’t have any guilt since we have our other bases covered.

  11. I agree that future income is never guaranteed. I know of several former co-workers who counted overtime and shift differential as income when they purchased their homes. Sadly, the off-shifts ended and this company went to a regular five day work week. The last I heard was that they were in danger of losing their homes.

    I retired early, am debt free and have no mortgage. Even though my husband is a military and police retiree I suspect that sometime in the future these pensions may be reduced.

    Therefore we live as simply and frugally as possible. It does sadden me that so many are in the hole financially.

    • All pensions, social security and Medicare are in trouble. Social Security funds were NEVER set aside as a pool of purchased treasuries, for example, and so there is NO real trust fund. State, county and municipal pensions were generally funded, but used an unrealistic assumption of say 8% a year return on investments. Since we have had a negative return for the past 11 years, these are now woefully underfunded. Medicare is currently the single biggest Federal expense line item, and it is going to be under the gun. Our so called leadership wants us to spend spend spend to get the economy growing again, but consumer confidence in general, and for those following this type of board specifically, is very low. I’m desperately trying to deleverage my remaining $150,000 mortgage balance.

  12. I agree completely. I’m always looking to increase cash flow. I prefer to reduce debt than to invest in something that may return higher than my debt’s interest rate for that very reason.

  13. I agree. I went from working 40 hours a week and being miserable with tons of debt to working part time and having very little debt (I have the house and student loans). I even started a website, to share with people how to get free stuff and to live frugally. The best thing I ever did was cut out cable! I save over $70 a month just by doing that!

  14. I have a confession to make (maybe more than one!)
    I am one of those eternally optimistic people who always made more money, year after year, and who is fortunate to have a couple of inheritances in the queue.
    However, I am approaching middle age and I’m getting wiser.
    I’m not counting on the inheritances (what if all was lost in the market, what is my husband were to leave me (crazy thought 🙂 and the in-laws remove me, etc.)
    Some dear friends just lost everything in the Texas fire last week. I mean everything. They have insurance but it’s still devastating.
    I live in earthquake country so any number of things could happen.

    Look what we just went thru yesterday, 9/11 anniversary. I’m sure those families has no idea what hit them and how they would recover financially and emotionally.

    We had a successful business that we sold and then found ourselves both unemployed for 2 years when the markets crashed in 2007/8! Neither one of us had *ever* been unemployed in our lives. A real wakeup call.

    I am much more humble as the years go on and I realize how many factors are beyond our control.