How to Tame the Cash-Flow Stallion

A while ago, my friend Perry from Singapore reached out to me for some insight on managing cash flow. First off, I was super honoured that he thought to ask me for my opinion. I love, love, love talking about cash flow! It’s the life blood of business. This really speaks out to me and anyone who is self-employed… Scratch that. Even if you’re currently gainfully employed, cash-flow is the life-blood of your day to day life. I like to think of it as the stuff that enables you peace of mind. Your marriage is better because of it. Your relationship with your kids is better. Oh, Cat, you’re so pragmatic. Don’t you know that love makes the world go round, and money can’t buy happiness?

Photo Credit: via

Photo Credit: via


Ya? Explain then, why a staggering percentage of marital conflicts are due to financial stress. Money, may not directly buy happiness. But you can’t tell me that being able to take a couple weeks off and take your family to Paris doesn’t bring you happiness. The peace of mind that your house won’t get taken away from you if you don’t make rent doesn’t give you gratitude? I’d say the root of your problems isn’t cash flow. You know, cash-flow also enables therapy as well, but I digress.

To give you some perspective, Perry Lai is a technical instructor at Singapore Polytechnic. He has a family of three beautiful children. He happens to be married to wonder-woman, which I expect, is the real boss. He also owns and operates a thriving tutoring business. In addition he has a very educational website called


(…where he had me on as a guest on his podcast, by the way.) Stay tuned!

Perry enjoying sushi with jr

Perry enjoying sushi with jr


Here is our chat. (Published, with Perry’s permission of course)

Ok. Now that the stage is set, here is my response:


Good morning, Perry! I’m so glad you reached out to me, and honored that you would ask me of my opinion. Talking about stuff like this gets me fired up!!!

Both Lawrence and I are self-employed as well. As you have experienced, when you are self-employed, your income tends to go goes up and down. Being in consulting, I take on contracts that last multiple months, upwards to a year long, but still I find that managing cash flow is something that I actively need to manage. Enough about me. Let’s address your goals.


Goal #1 – Save Money for Family and Personal Regularly Regardless of Income

If I may ask you a few questions first…

Do you know what your Burn Rate is? I wrote about this on my blog. Your burn rate is the minimum amount that you need to survive. So, it would be exactly how much your living and business expenses are.


If you don’t know this, I would recommend that you map out everything that you need to live, and what your business expenses are. I’m sure you know this, but in the business world, these are the ‘cost drivers.’ Some of the usual suspects are as follows:

  • Mortgage payment / rent
  • Condo fees (as applicable)
  • Utilities
  • Groceries
  • School payments
  • Car – gas
  • Insurance (car)
  • Insurance (home)
  • (etc)

You can go to my post What’s you Burn Rate and Why you should Care, for the full list.


Here’s How to Easily Figure Out your Burn Rate

Export your last three bank statements. All of these expenses should likely have been listed on your bank statement. (the reason why I said 3 bank statements is so that you can see your
spending trends.)

Multiply the sum of the above expenses by whatever your tax rate is. In Canada, I use 25 – 30% as a benchmark. This is the minimum amount of money that you need to bring in to live. You can then re-evaluate these expenses to see where you can be more efficient.

Organize the expenses chronologically according to your bank statement. This will give you an idea of when you need to have cash in the bank account to pay for certain expenses like your mortgage.

To achieve goal #1 – Save money for family and personal regularly regardless of income, add the amount that you want to save to the above list. You can later on create a savings plan over a number of months to get to your ultimate savings goal.

Do this for both your personal (family) living expenses, and your business. I created and attached a burn rate template for you to try out.

(By the way, you guys can also download my burn rate template on the right side!)
(insert right arrow)


T.Harv Ekar’s Wallet Method

I know you’re a fan of T. Harv Ekar. As you and I discussed on your podcast, you’re currently training your kids to use his wallet method. The wallet method, of course, allocates your total (after tax) income for any given month as follows:

  • 10% for long term savings for spending (all the big ticket stuff you want to buy)
  • 10% for play (sports movies, etc)
  • 10% for education (personal development, courses, books, coaching, etc)
  • 10% for financial freedom (streams for retirement income)
  • 5% for giving (giving toward causes that better the community)
  • 55% for necessities (living expenses)


So, let’s work to build up your income such that you can employ Harv’s wallet method. As you build your businesses, you should aim to increase your net income such that your living expenses are 55% of your income or less, and the rest as prescribed. At the very start though, you need to start out mapping the expenses out, so you don’t go into the red.

Related Post: Why Your Networth is Sexy


So, here is a concise Action Plan for Goal #1:

  1. Export your last three bank statements into Excel.
  2. Categorize the expenses by type (Mortgage, Insurance, Groceries, etc.)
  3. Sort the expenses chronologically by date, and remove the duplicate ones (over the three bank statements). You should have only unique expense types at the end.
  4. Add in your savings goal for the month. Perhaps you can consider dividing this savings goal into 5, and inserting it in every week. (So that you have a weekly savings goal)
  5. Sum this up for the month, and multiply by 1.30, for taxes.
  6. Include a sum for each week (remember to multiply by 1.30). This is the weekly minimum amount of cash that you need to have in the bank so that you can pay for whatever expenses comes out next.


Goal #2 – Know What to do with Income once I get it

When I first went self-employed, I didn’t know put away money for taxes in the first year or two. As a result, I would always be very poor when my tax bill came in. I would end up forfeiting my entire month’s income in order to pay the taxes on April 30, which is when personal tax is due in Canada.

Why your Net Worth is Sexy

Then, I figured out this strategy, and it’s worked out really well for me ever since. Every time you get a payment from you customer, before you do anything, put away 25% in a separate account for taxes. This money you will not touch, until tax payment time.


Action Plan for Goal #2:

  1. Set up a savings account (for taxes) for your business and one for personal.
  2. Set up a savings account for your savings (you likely have one already)
  3. As soon as you get payment, divide it by 4, and put a quarter of it in a tax account. Then when you pay yourself, do the same thing.
  4. Then do the same thing for your savings. Transfer the amount of your weekly savings goal into the savings account.
  5. Then calculate what you need to pay out for the next week or two weeks.
  6. Put the remainder in your savings account, or an emergency fund account if you have one. If you’re not meeting your weekly goal, sometimes, you can use the money in this account.

As your income trends get more predictable, this will be more and more auto-pilot as time progresses.


Here’s how Millionaires Accumulate their Wealth

I listened to Ryan Daniel Moran’s podcast (Freedom Fast Lane) where he interviewed Nathan Latka. I got a few key things out of the podcast.

1. Nathan Latka plays at a whole new level of financial rock-stardom than the rest of us peasants. By age 24, he was selling multi-million dollar companies when the rest of us were trying to slug it out in our entry-level jobs. He’s well on his way to becoming a billionaire by the time he’s 30. Hence, if you want to follow someone who knows how to save money and build wealth the right way, he’s your superhero.

Photo Credit:

Photo Credit:

2. At (15.13), he illustrated that he does the following with each and every dollar that he makes personally:

  • 25 cents goes to enjoying life (living expenses)
  • 75 cents goes into a very diversified mix of the following:
    • 30% domestic equities, like an index fund in Vanguard.
    • 20% real estate
    • 5% foreign development markets
    • 15% foreign emerging markets
    • The remaining bit goes into treasury inflation protected stocks to hedge inflation and treasury bonds. (aka. boring-ass investments)

He goes on to note that the key the most wealthy people on earth figure out how to take a dollar and turn it into a $1.20.  Sure. No big deal. But there are two key things:

Two things:

  • You can find investments that would grow your dollar 1.20 over the first year. But then you have to put the time in to go and find that next investment to continue the trend. Not an efficient use of time.
  • It is way better to find something that would grow 20% for the rest of your life. Most people are speculators looking the home run plan, per Ryan Moran. The wealthiest people consistently look for slight edge investments.

This was truly one of the most insightful and inspiring podcasts I’d ever heard. I highly recommend checking it out.


Goal #3 – Be able to know in advance my income and expenses for both personal and business.

What you’re really asking is how to predict your income and expense trends. I don’t necessarily believe you fully when you say that your income is completely unpredictable. There must be some trends that you can see. Your freelance lecturing should be at least sessional, no? It sounds like it could equate to my contract work. I would recommend doing the same three-month analysis for your income. You can then see when your cash comes in, and more importantly when it needs to be there for your expenses. For example, I bill on a monthly basis. My client then has 30 days to pay my invoice. I know exactly when the payment comes in. When I pair this to my expense timeline, I know exactly what needs to be in the account at what point in the month, and what will be coming out.

Keeping this timeline will help you achieve Goal #3 – Be able to know in advance my income and expenses for both personal and business.


Goal #4 – My Wife Earns an income from out Business too.

I need more info on this one…. some questions that come to mind are:

  • What is it that she wants to do?
  • What are her strengths?
  • What is she good at?
  • What is she trained in…

Do you work well together? (Lawrence and I tried working together once… We chose to stop doing that so that we can stay married) 🙂

Update: Perry’s wife now takes on the Marketing and Procurement areas of their business. What’s more, is that he has now employed a virtual assistant to offload some of the mechanical tasks in order to free up his time to build his business. It accomplishes three beautiful things:

  1. She gets to earn an income from the business
  2. Perry and his wife get to journey and grow together as they build their business. (This is very admirable and takes a lot of collaboration to stay happily married at the same time!)
  3. The marketing and procurement areas are handled by someone who would care just as much as Perry.


Final Words

As I mentioned, cash-flow is the life-blood of the day-to-day workings of a business, and even in your personal life. If you’ve been an employee for a while, you might not notice the trends… Well.. you might if you’re living paycheck to paycheck. If you are, it’s all the more reason to have a strategy to get off that treadmill!

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