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D. Murali

IF there is a battle that CNN may not cover, this must be it: "Cash Flow War," by Fred Rewey, from Wiley (www.wiley.com).

The book minces no words when reminding us that every day, we're fighting to stay afloat. But it's not about getting rich quick because, statistically speaking, you are five times more likely to be struck by lightning than being lucky in making a fast buck, Fred would point out before putting you to work for cash.

First, draw up your financial goals. And stay motivated. "The first big motivator for people is the pursuit of happiness," writes Fred. To win the war "we really need to follow the lead of other people who are already successful," he assures, and lists three things required for success: "acknowledge, learn, and apply." Acknowledging that there is a problem is critical, please note.

An oft-ignored task is record keeping. "An accurate record of your spending will be one of the most important things you can do in the beginning," states the author. Keep separate personal and business expenses, pay by cheque or debit card, and get receipts for cash outgoings. Keep your important papers - such as mortgage, insurance info, wedding and birth certificates - in your safe deposit locker in the bank, advises Fred, because these are difficult to replace if lost.

Maintain an `active file' with unpaid bills, current bank statements, tax working papers and so on. After three years, move these items to `dead storage file'. Also, set up your `home cash flow command centre' with basic things such as a chair, a lamp, a financial calculator, pen and paper, and a place to keep your files.

The author then puts you through a 40-question `net worth test' to find out your financial health. He asks queries such as, "Do you live in the neighbourhood that you desire to live in? Do you have health insurance? Do you save 10 per cent of your gross income each month?" Income has nothing to do with your net worth, says Fred, because what matters is not the money you make but "what you do with the money available to you."

The three-stage exercise to find out net worth involves adding up assets, totalling up liabilities, and arriving at the bottom line by subtracting liabilities from assets. "It's very possible that it's a negative number, especially if you have credit card debt and a car loan," writes Fred. "Don't be too upset by this number... Most people are in the same boat." But the difference is that you may be one of the very few who know their net worth!

A chapter is devoted to a word that you may detest - budget. But Fred has a trick to share - of creating a `livable' budget that works for you, not against you. "Record keeping only shows you where your money goes. Budgeting will help you make sure it goes to the right place," he explains and suggests eight easy budget cuts such as packing a brown bag lunch to work and buying groceries in bulk. "Whatever you may have to cut, leave the 10 per cent for savings and investments alone," he cautions. "For every 10 months you save your 10 per cent, you will have an entire extra month of income in the bank."

A chapter of interest is the one on using financial calculators such as HP 10B and BA 35 where you move beyond basic arithmetic to computation of present value, future value, N, I, PMT and so on. With a gizmo like that you can bargain better with your bank and car dealer. However, if you're comfortable with Excel, carry your laptop when going out to negotiate.

Credit cards are often a curse than a blessing. The best way to get credit card debt under control is to pay cash, advises Fred. "Most of us have credit limits that well exceed weekly, monthly, or even yearly income. This gives us access to a ridiculous amount of cash, but it also helps us to create a ridiculous amount of debt." Likewise, review your bank account to see if it's the right one for you. If you do all of your banking online, save your transaction records on hardcopy or disk, advises the author.

Monthly car payment can be a cash flow killer, warns Fred, and shares an insight about successful people that very few of them ever bought new cars. "They would always buy a car that was a year or two old - and their cars were still mint, still under warranty, and much, much cheaper than brand new cars."

You know what type of car you need; you know how much money you can spend, reminds the author. "But car dealers know that most car purchases are made based on emotion. You must remove the emotional factor when you walk into a showroom or onto a used car lot." In a different chapter, again, Fred would emphasise how emotions can lead to losses when playing the market. "The best investors I have met in the stock market are those that are able to make investment decisions that are not based on emotion."

Go, win the war with Fred showing the way!

BookValue@TheHindu.co.in

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