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How I Got out of Debt By Running My Personal Finances Like a Business

What if I told you there was better way to manage your personal financial life? 

A way to help prepare for the future, save more money, avoid bank fees … and rather than pay interest … actually earn interest and rewards?

If that’s appealing to you, then you should consider running your personal finances more like a successful business, and instead of old-school budgeting, start managing and optimizing your cashflow. 

What is Cashflow? 

Well, in business terms, it’s the net amount of money being transferred in and out of a business. A company’s ability to create value for shareholders is determined by its ability to generate positive cash flows, meaning after they pay all of their bills each month, they have money left over to save or reinvest.  Your ability to build savings and wealth is determined by the same principle. 

Business owners “manage” their cash to optimize profit.  And that requires looking beyond a given month and planning by quarter, and for a fiscal year.  And they exert much more control over how (and when) they pay their bills, all while earning interest on their undeployed cash.

Fees (of any kind) are avoided at all costs, because fees reduce profit. And smart business owners always maximize opportunities for rewards or discounts, for example, a discount for paying invoices early.    

Just like any successful commercial enterprise, most of us earn income on a fairly regular basis — some monthly, some bi-weekly.  The keys to maximizing your personal cashflow are:

  1. Simplify your finances by reducing the number of merchants (utilities, landlord, banks etc.) you pay each month
  2. Stop paying bank fees and interest.
  3. Take more control over when and how you pay your bills. 
  4. Recognize — then reduce — unnecessary overhead and expenses through better tracking and awareness.  
  5. Maximize credit card rewards and your ability to earn interest on your cash.  

How I Became A King of Cashflow

This all started for me when I was 32 years old. I was deeply in debt, to the tune of about $250,000, and was inspired to climb out this debt after reading Dave Ramsey’s book wonderful book; The Total Money Makeover

But I was lousy at budgeting, and this was before a lot of banking could be done on the internet. And to me, balancing a checkbook was pointless because the process didn’t account for my ATM withdrawals or credit card spending. 

My process was more about “feel.” 

When I felt like I had money in the bank (like on payday) I would write checks for bills and pull cash out of the ATM. Friends would tease me about withdrawing only $40 at a time, they would say “why don’t you just pull $100 out and visit the cash machine less?”

Well, there are few things worse than being in a car full of friends, with a line of cars waiting (impatiently) behind you, and getting denied at an ATM machine. So, I would take out smaller amounts. 

I was constantly under stress because I never had a complete picture of where I stood financially. My “feel” system contributed to my growing debt and resulted in hundreds of dollars worth of bank fees each year.  

Income Needs to Be Managed for Optimization

I didn’t have an income problem; I had a cash management problem.  I made enough money — but I lacked the vision, time and tools to get the most out of my income. 

So, I began keeping a financial journal in a spiral bound notebook, the kind you use in high school or college, and started tracking all my expenses. A few times a week I would try to sort out my financial life.

18 checks written in September of 2003

As you can see, I had dozens of expenses and I was writing a lot of checks. When checks cleared, I would highlight them.  

This worked better for me than just balancing a checkbook because it gave me greater vision into my entire financial universe, but it was still complicated and time consuming. 

Another wrinkle, I was in sales and worked on commission, and my pay was irregular.  I’d receive a meager draw check in the first week of each month, and a larger commission check in the 3rd week of the month. The draw checks were a consistent amount, but the commission checks could swing by thousands of dollars from month to month.  

So, I needed to find a way to exert more control over who I paid and when.  The banks who held my mortgage and car loan didn’t care when I got paid, they only cared about their due date.  So, I had to figure out a way to stabilize my irregular income while paying the same bills each month.

The more I thought about it, the idea of writing dozens of checks each month really bothered me. It was time consuming, and I had very little control over my outflow of cash.  

I realized every time I wrote a check I would temporarily lose control of my money. My checks would be in limbo for 3 – 5 business days, and since I was writing dozens of checks each month, a lot of my money was in limbo.

This lack of control added stress and I was never at ease until every check cleared.  Even to this day I avoid writing checks at all costs.  It’s slow, inefficient, and boring.  There are dozens of electronic ways to pay people and merchants. Use them. Checks are for our beloved grandparents.   

It became clear to me it was more efficient to write one or two checks — to a credit card company— rather than dozens of checks to a variety of merchants. 

This is a point in time where I began using one credit card, called the Cashflow Card, for all of my transactions. And I started shifting and paying expenses towards when I received my bigger expense check each month.

This was a key revelation, because it gave me greater control over the flow of money going out of my checking account. 

The simplicity of paying fewer merchants alone is life changing. While businesses have accountants and bookkeepers, most of us are on our own, so reducing complexity pays huge dividends.   

The less activity and more stability I created in my checking account, the more quickly I eliminated all fees.  

My checking account activity today is no more than 6 or 7 electronic transactions covering all of my personal financial obligations every month. I rarely, if ever use cash, because 99% of businesses accept credit cards. Contrast that to the 30+ transactions that used to flow in and out of my checking account.  

And my bank (Charles Schwab) pays me interest (not much) AND they refund all ATM fees. If you pay any fee whatsoever to keep a checking account and use an ATM, you need to find a new bank or credit union. Because if you’re willing to bank electronically, meaning you don’t need to visit a branch, there are tons of great options out there.  

Ask yourself, do you really need to go inside a bank branch to do your banking anymore? You have a phone, a computer, and if you need cash, you can go to any ATM.  In a future post I’ll share some banking partners who won’t charge you fees and allow you to earn interest on your checking account.    

Keep Your Paws Off My Money

Another thing I eliminated was allowing anybody access to my checking account. Utilities, car payments, mortgage payments — they all encourage you to sign up for automatic billing. Sure, it’s convenient — for them — but never do it. I permit some merchants to auto-bill my credit cards, but only if there are no fees.  AT&T, HULU, my gas utility, and my high speed internet carrier all bill me on a credit card and do so without a fee.  

Everyone wants you to pay by automatic payment, only do it by credit card and only if they don’t charge you a fee.

Never, ever, let someone else decide when they can take money out of your checking account.  This is the antithesis of good cashflow management.  No business allows this.  

Why?  Because one day, somebody might take your money when you need it for a more important purpose, like a medical emergency.  Or even worse, the money goes out of your account when you don’t have it, and then you get charged a bunch of fees.  Only you decide when bills get paid, and if money is tight, who gets paid — and when.   

Today, of course, most payments can be made online without the use of checks, and debit cards are much better than checks.  But credit cards, if paid off each month, are the keys to optimizing cashflow.  

Why Credit Cards are the Key to Cashflow Optimization

The biggest advantage of using credit cards is control.  I was able to focus all of my checking account transactions (cash outflow) to a few days per month and eliminate 80% of my transactions.  

And, even more helpful, I was able to change the due dates of my credit card to correspond to when I was getting my larger commission check each month.   

The more monthly expenses I could direct through credit cards meant the fewer bills I would have to pay and fewer due dates to remember.   

I have 12 credit cards, half of them are due early in the month, the other half in the middle of the month.  So, all of my credit card due dates are aligned with my paychecks.  

While I have 12 credit cards, I only use one at a time based on the type of rewards being offered.  

Below you can see how my cashflow (through the increased use of a credit card) evolved into paying bills when I got paid. In the meantime, my cash started to earn interest as it sat idly in my checking account. 

By 2007 I was paying as many expenses as possible with a credit card, and thinking only about aligning bills with paydays.

Unmatched Fraud Protection

Another advantage of using credit cards — fraud protection. If someone steals your debit card (or checkbook) precious cash will vacate your account until the bank decides to reimburse you.  If the same happens with your credit card, your precious cash stays untouched AND credit card companies (who have fraud down to a science) will credit your account within days. 

How to Avoid Unplanned and Unauthorized Charges

Another advantage of credit cards — managing subscriptions and automatic renewals.  Ever get dinged for a subscription you forgot about?  Sometimes I’ll sign up for 1 month of HBO or Showtime and catch up on some shows.  Then I forget, and then ding me for $10.99 or whatever.  And over time these types of subscriptions pile up. 

A lot of merchants today sell subscriptions — from Apple Music to Hulu to Bumble to the New York Times.  It usually starts with a free trial, and before you realize it the trial is over, and like merchant ninjas, they silently begin charging you for the subscription. 

They call this continuity and it’s a great business model because most of us don’t immediately cancel — even if we’re unhappy with the service.  

Some companies make it very difficult to cancel (DirecTV, any cable company).  Even worse, some companies require you to talk to an actual person before you’re allowed to cancel.  

There is one simple and foolproof way of getting rid of unwanted and forgotten subscriptions.  Never use anything but a credit card for any type of continuity or subscription service.  And when you want to cancel, if it’s the least bit difficult to do, go online and report your credit card lost.  

Job done, cancelled, no more unplanned charges.  And your credit card company will send you a new card, with a new account number within days.  

If you cut off their source of payment, they can’t keep billing you, and you won’t owe any money.  And it won’t impact your credit score one bit.

Actually, DirectTV will keep billing you because they make you sign a contract, but with most others, especially e-commerce type businesses, this works without consequence.

Maximizing Interest and Rewards

Another advantage of credit cards — points and rewards. Let me just say that by using credit cards I’m able to accumulate a few thousand dollars in rewards each year.  Chasing points and rewards fascinates a lot of people. To me it’s not worth the time. I’ll share some ideas and tricks on how I was able to maximize rewards and interest earned in a later post.  

Points and rewards are just an additional benefit of using credit cards to maximize your cashflow. And the generosity of today’s rewards may not last forever. As a practice, regardless of rewards or incentives, I no longer use any credit cards charging annual fees.  I just won’t pay fees regardless of the benefits.  

Stepping Into the Light

So, after a few years of optimizing my system I vastly improved my cashflow, I stopped paying fees (and interest) of any kind, I was able to pay off $75,000 in debt (everything but my mortgage), and I was able to build up a sizable emergency fund.

Many of you reading this may feel taking the time to eliminate minor fees isn’t worth it.  But it is, I can’t stress this enough.

Fees and interest are silent killers, like termites eating away and eroding your home’s foundation, quietly munching away years of personal profit.

In December of 2018 I wrote 3 checks. The rest of my expenses were paid by credit cards and all of the credit cards were paid via electronic transfer directly from my checking account. Additionally, there are no fees, a tiny amount of interest was earned (better than nothing), and my bank refunded my ATM transactions.

Your personal banking and transaction fees may only add up to few hundred bucks a year, but find me a successful business owner who willingly pays bank fees.  

And when it comes to paying interest, the only acceptable form is mortgage interest, because it’s tax deductible.  And this lone tax deduction is not a reason to buy a bigger house and take out a bigger loan.    

In my next post I’ll introduce you some of the tools I use that helped me reduce my overhead and uncover unnecessary spending.