Wealth With Purpose: Managing Cash Flow for the Upcoming Year

With December here, we set our sights on finishing the year strong while also preparing for 2025, including reflecting on our financial habits and making the needed adjustments to set ourselves up for future success.

This final month of the year is also a time when many of us are making big-ticket purchases, allocating funds for our business, or, let’s be honest, spending a little too much on the holidays.

So, December offers a great period to review our expenditures, ensuring that our financial system is aligned with long-term goals.

Of course, cash flow is the foundation of every financial decision—whether it’s saving more, investing, making home renovations, or planning a vacation. Having a clear and effective system for managing cash flow provides the transparency and confidence needed to make decisions with purpose.

With that in mind, here are some thoughts and notes on properly managing your cash flow.

What is Cash Flow, and Why Does It Matter?

1. Active Cash Flow: The money you earn through work, business operations, or other active efforts.
2. Passive Cash Flow: Income generated from investments, rental properties, or dividends—money working for you.
3. Free Cash Flow: The amount left over after all necessary expenses and obligations are paid—your true financial flexibility.

A strong cash flow strategy helps you manage all types of income effectively, ensuring that your money works harder for you.

The Problem with Direct Deposit into Checking Accounts

Most people have their income directly deposited into a checking account, which serves as the hub for all spending. Here’s why this common system can hold you back:

• "Out of Sight, Out of Mind": Savings often require a conscious effort—transferring funds to a savings account or increasing automated contributions.
• Lifestyle Creep: As income rises through raises, bonuses, or extra shifts, spending often increases at the same pace, leaving little for savings.
• Spending Bias: Money in a checking account is psychologically seen as "available to spend," increasing the likelihood of unplanned purchases.

In fact, studies consistently show that individuals who automate their savings are more successful at building wealth compared to those who rely on manual transfers!*

The Solution: Pay Yourself First

Transform your financial flow by routing all income—whether from direct deposits, bonuses, dividends, or rental income—into a savings account or brokerage account first. Think of this account as your Wealth-Building Account, the foundation of your financial strategy.

Why a Wealth-Building Account Works

1. Encourages Unconscious Saving: Income automatically lands in an account designed for saving, not spending. This subtle shift creates a habit of saving without requiring daily decisions.
2. Earns Passive Income: High-yield savings or money market accounts generate interest, even if the funds are later moved for spending. This extra income adds up over time.
3. Captures Unexpected Income: When bonuses, raises, or reductions in payroll taxes occur (like hitting the Social Security wage base), the extra income is automatically saved instead of spent.
4. Promotes Financial Discipline: By transferring only what’s needed for monthly expenses to your checking account, you create a system of intentional spending.

How to Implement This System

1. Set Up Your Wealth-Building Account: Choose a high-yield savings account to serve as the central hub for all income sources.
2. Automate Transfers: Schedule automatic transfers from your Wealth-Building Account to your checking account to cover regular expenses.
3. Adjust Over Time: Periodically review your income and expenses. As your income grows, allow the system to naturally save more for you without manual intervention.
4. Utilize as a conduit to other wealth Creation Vehicles:

Accumulating money in short term savings such as a high yield savings account or money market only gets you so far. The Wealth Building Account should be coordinated to save monthly, quarterly or annually into other savings and investment vehicles such as a stock portfolio, whole life insurance, retirement accounts or other alternative investments.

The Compounding Benefits of Paying Yourself First

This strategy doesn’t just help you save—it transforms your relationship with money:

• Build Momentum: Even small amounts saved consistently grow over time, creating financial security and confidence.
• Achieve Goals Faster: Funds in your Wealth-Building Account can serve as an emergency fund, opportunity fund, or foundation for investments.
• Reduce Stress: Knowing you have a system in place allows you to focus on life’s bigger picture without constantly worrying about money.

As we say farewell to 2024 and welcome in the new year, take this opportunity to reset your financial system. A simple adjustment like paying yourself first can have a profound impact on your wealth-building journey.

If you’d like guidance in setting up this system or refining your cash flow strategy, let’s start the conversation.

Your future self will thank you!

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Source:

https://finhealthnetwork.org/wp-content/uploads/2022/07/Building-Consumer-Savings-with-Fintech-Innovations-2022.pdf

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America? (Guardian), New York, NY. PAS is a, wholly-owned subsidiary of Guardian. Ascend Wealth Partners is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License Number - 0I94759 7408778.1 ?exp 12/2026

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