Early in my selling career, I invested in the Sandler Sales Training Program, and I’ll never forget a lesson that still sticks with me today: Act as if you are financially independent and don’t need the business.
At the time, I was a walking personal financial disaster, having amassed over $250,000 in debt. I borrowed money from everyone – friends, family, credit unions, banks, and personal finance companies. I abused credit cards, leased cars I couldn’t afford, overspent on food and booze. I never saved money, never budgeted, cashed out my 401k, bought a house when I was broke, and paid massive amounts of interest and bank fees. Oh, and I also gambled.
Every sale became too important because I needed the money, and my prospects knew it – because I dripped with desperation. It dawned on me that if I remained financially desperate, I would never become an elite salesperson, and end up DEAD BROKE in retirement.
I began reading every book I could find about personal finance, went to seminars, and met with many advisors and counselors. There is very little information on this topic I haven’t studied, and some of it was inspiring and helpful, but most of the information was boring and unoriginal.
It seems over the past century, despite all of our economic and technological advancements, not much has changed in personal financial advice – spend less than you earn. Duh. More troubling, all the advice seemed to be for salary workers – those earning predictable regular incomes – while ignoring a huge segment of the population who worked on commission – like salespeople!
I needed tactics I could apply to my life as a salesperson with erratic income. Traditional monthly budgeting didn’t work for me. I was using money on a growing number of platforms, making it confusing and harder for me to track my entire financial universe. There were ATM withdrawals, checks, debit and credit card transactions, electronic checking transactions, and automated billing. I needed a way to not only smooth out the peaks and valleys of my income, I wanted a simpler way to manage and visualize my entire financial universe.
So, I started studying the tactics that successful businesses employ to optimize their cashflow. Like me, a salesperson who works on commission, most businesses don’t have steady income every week, or even monthly. They have to master the art of juggling cash, and they do this with a number of different tactics.
For one, they utilize credit to gain more control over when they pay their bills. Second, businesses forecast their income and expenses quarterly, and often yearly, rather than just by month. And finally, businesses track their expenses to ensure they aren’t overspending in any particular category.
In this series of four blog posts, I’ll share how I climbed out of a quarter million dollars of debt to become an elite seller, and builder of wealth, by running my personal finances more like a successful business.
What is Cashflow?
Defined 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 its owners and shareholders is determined by its ability to generate positive cash flows, meaning after they pay all of their bills, they have money left over to save or reinvest. I was able to get out of debt and start building wealth by following the same principles, and here are the key steps I took:
- By utilizing credit I was able to reduce the complexity of my finances and control when I paid my bills.
- Created an easy way to visualize my income and spending over an entire quarter, beyond one month, helping me see my entire financial universe in one place.
- Started tracking my expenses through a free online service, helping me identify and reduce spending habits that contributed to my negative cashflow.
- Smoothed out my irregular income by optimizing credit card float, a practice I call Credit Card Arbitrage.
Master Your Cashflow
I was never good at budgeting, especially in my youthful roaring twenties. Before I began running my personal finances like a business, my budgeting system was more about feel. When I felt like I had money in the bank – like on paydays – I’d pay bills and pull cash from an ATM – often paying a $3 fee for the privilege of accessing my own money.
Friends would tease me about withdrawing just $40 at a time, they would say just take out $100 and visit the cash machine less! Well, there’s nothing more embarrassing than having a car full of friends, with a line of cars waiting impatiently behind you, and being denied at a public ATM machine.
At the time, $40 seemed like better odds because I never had a complete picture of where I stood financially. I was perpetually overwhelmed, confused, and lacking control. At any given time, there were dozens of outstanding checks, credit and debit card purchases, cash withdrawals, and other bills deducted directly from my checking account. My feel system contributed to my growing debt and a ton of bank fees, overdrafts, and interest paid.
Income vs. Management
The thing was, I didn’t have an income problem, I had a cash management problem. I made enough money, but lacked the vision, time and the tools to maximize it.
Once, while renting a house in Indianapolis with friends, I bounced a check to the power company and our electricity was shut off for several hours. I’ll never forget sitting on the front porch, in the fading summer sun, feeling like a complete loser while my roommates glared at me in disgust – because I had the money; I was just terrible at juggling it.
So, I started keeping a financial journal in a spiral bound notebook and began tracking all my income and expenses. A few times a week I’d sort out my entire financial life.
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 balancing a checkbook, because it gave me insight into my entire financial universe.
Since I worked on commission, my pay was irregular, I’d get a small draw check on the first of the month, and my larger commission check on the 15th. The draw checks were always the same, but the commission checks could vary by thousands of dollars – further complicating how I would pay my bills.
I needed more control over who I paid – and when. My vendors – the people I owed money to for goods and services – didn’t care when I got paid, only that they get paid on their due date.
The more I thought about it, the idea of writing dozens of checks each month really bothered me. Not only did it take a lot of time, I would also lose temporary control of my money. Some people would sit on my checks and not cash them for days or weeks, or they would get lost in the mail.
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 vendors. So, I decided to start paying for as many of my expenses as possible with credit cards. A practice, by the way, widely accepted in the business world.
This was a key revelation – instantly I gained control over my cashflow. As paychecks were deposited to my checking account, I could let my cash sit undisturbed while I went on paying for most of my needs with credit.
The credit card issuers allowed me to choose due dates on either the first or middle of the month, so I arranged my due dates to correspond to my paydays. This allowed me to focus all of my cash outflow (bill paying) to just a few days per month – around my paydays – and eliminate most of my checking account transactions.
I would go on to write fewer and fewer checks, saving time and vastly reducing the complexity of my bill paying each month. And the less activity and more stability I created in my checking account, the more quickly I eliminated ALL fees.
This became a complete game changer for me. Instead of having to remember dozens of due dates scattered throughout the month – and write just as many checks – my vendors could now charge my credit cards as needed, and I would settle up whenever I got paid. In effect, I streamlined the process granting me absolute control.
The more of my monthly expenses I directed through credit cards meant the more cash would accumulate in my checking account raising my average daily balance. Eventually this allowed me to qualify for premium checking accounts that paid interest, charged no fees, and offered other incentives.
Incentives like getting reimbursed for all of my ATM fees, no matter where I withdraw cash. Granted, I don’t make a lot of money on interest, but combined with not paying fees it adds up to about $100 each year. Businesses don’t ignore the many advantages of using credit cards to optimize their cashflow, nor should you, and there are even more benefits.
Identity theft continues to proliferate, and it will strike almost everyone to some degree. A great benefit to using credit cards is fraud protection. If someone steals your debit card (or checkbook) and they succeed at making a transaction, precious cash will vacate your account until the bank decides to reimburse you – costing you time and energy. If the same happens with your credit card, the cash in your checking account remains untouched. Credit card operators have fraud down to a science and will usually credit your account the same day. Often, they will be the ones who alert you to the fraud.
Another advantage of credit cards — managing subscriptions and automatic renewals. Sometimes I’ll sign up for a month of HBO, then realize 3 months have gone by and I haven’t watched anything while still paying $15 per month. These types of digital subscriptions pile up as the number of content platforms keeps growing. There is Apple, Amazon, Roku, Netflix, Spotify, Hulu, and many more.
These digital merchants like to sell subscriptions. They usually start with a free trial, and before you realize the trial is over (like merchant ninjas) they silently auto-renew your subscription. It’s called continuity – and it’s a great business model because most of us won’t immediately cancel – even if we’re unhappy or not using the service.
Some companies make it difficult to cancel subscriptions, like DirectTV or any cable company. Even worse, some companies require you to talk to an actual person before you’re allowed to cancel.
There is a simple and foolproof way of getting rid of unwanted and forgotten subscriptions. Don’t 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, or you feel overwhelmed by the sheer volume of your commitments, ask the credit card company to cancel your card and get a new one. This will cut off their source of payment, they will automatically end your subscription, and it won’t impact your credit score one bit.
Some merchants – like DirectTV – may keep billing you but this action will prompt them to reach out, making the process of cancelling easier and on your time. But with most other companies offering subscriptions – especially e-commerce type businesses – this action will terminate your subscription without consequence.
Another huge advantage of using credit cards is earning points and rewards. Since I transitioned all my spending, I earn a few thousand dollars in rewards each year.
Credit card issuers compete fiercely for customers, and it’s a constant race to see who can offer the best perks, most cash-back, or more travel incentives. The business world has noticed and takes full advantage. I used to work at an advertising agency and the CFO paid for as many of their expenses as possible with a corporate American Express card, resulting in tens of thousands of dollars in rewards each year.
To the Nay Sayers
I know, I know, I know. Credit cards can lead to credit card debt, and financial slavery. And it’s proven (and hard to dispute) that when you use a credit card, there is no pain, you’ll likely spend more money, and risk not paying off the entire balance and incur interest charges – the opposite of what I’m trying to accomplish here.
But – as a savvy salesperson in charge of your own finances, to ignore the advantages of credit cards is to ignore one of the most versatile methods of conducting your business.
What keeps successful enterprises from overspending on credit is forecasting. Businesses plan further into the future by forecasting their income and expenses at least 3 months at a time, and often a year at a time – and so should you. In the next post I’ll introduce my quarterly cashflow planner, which makes my credit card spending feel like I’m using cash.