The Right Stuff

When one thinks of an exciting job, astronaut is probably high on the list. For many of us, and for a time, U.S. astronauts were true American heroes, all known by name and mission. Today we still hold astronauts in high regard, though we take their work much more for granted. We saw the first group of astronauts as space pioneers and new-frontier cowboys; we most likely see newer generations as “scientists in space.”

We know the outcome of their work includes Velcro, scratch-resistant lenses, memory foam, shoe insoles, cordless tools and waters filters— not to mention technical, scientific findings. But have you ever considered what astronauts spend their time on when they are in space? As in most professions, the glorious, exciting, attention-grabbing results usually come from basic, detail-oriented, sometimes tedious work. (I once read about an astronaut having to put bar codes on 5,000 items in the space shuttle during a mission. He surely didn’t pay extra attention in high-school AP physics for that.)

Of course, this is everyone’s experience in some ways. There is really no such thing as an overnight success. Not in business, science, education, or music. And clearly not in personal finance.

A mission basic

Take one of the financial jobs that people often think doesn’t matter, isn’t for successful people, can’t help much, or is too hard . . . analyzing their cash flow. In other words, tracking what money is coming in and what is being spent in the course of a year, say.

Many businesses check cash flow every day. It is the one true measure of value, solvency, and possibilities. When adversity hits, the companies that survive and prosper are usually those with strong cash positions. The same is true for individuals and families.

Sure, you’d probably rather focus on the exciting, outside-the-space-ship moves, such as investing in a small medical- device start-up company, jumping into a BRIC fund to take advantage of emerging markets, adding gold to your IRA as protection against the inevitable inflation, buying into a health-care REIT to take advantage of long-term demographic trends, buying commodity ETFs in anticipation of a resource shortage when the economy improves, or shifting between stocks and cash at market peaks and lows.

Important stuff: not always what you think

But my experience tells me that regardless of your net worth or income level, those ‘moves’ aren’t nearly as important as disciplined monitoring of what comes in and what goes out. That’s how to be sure that the “what goes out” isn’t larger than the “what comes in.”

That’s also how to spot ways to increase your wealth and security. I’m not talking about saving $3 a day by making your own coffee. Anyway, coffee doesn’t cost $3 at Starbucks, fancy drinks do. And the tedium of that level of detail might keep you from analyzing your cash flow in the first place.

No, here are the kinds of smart actions that I have seen come from a look at cash flows in the last year.

Insurance review. After sticking with the same auto, home and umbrella coverage for 6 years, one couple decided to get other quotes. They found a financially strong, highly reputable insurer to provide the same coverage for $700 less annually.

Life vs. lifestyle. After 10 years with a membership at a private golf and country club, another couple realized that they just didn’t golf much and didn’t see this changing. They downsized to a social membership, still see their friends a couple of times a month for dinner, and saved $450 a month.

Taxi! For many years one family had two SUVs. But the kids, into their middle teens, were now less dependent on Mom and Dad to get them and their friends where they need to go. So Mom and Dad traded in one SUV for a 4-door sedan. Gas bills and car payments both dropped dramatically. (Now they’re wondering about that other SUV…)

Healthy and tax free. A family of four added up these personal care costs: contact lenses $800; eyeglasses $600; chiropractor $1,200; and OTC medicines $200. When they added in insurance co-pays and deductibles of roughly $1,500, they had outflows of $4,500. By contributing to a flex spending account at work they were able to pay for these items pre tax, saving approximately $1,500 in taxes. Consider it exercise. Another family decided it was time to get back to their own yard work. After years of hiring landscapers to mow the grass, prune shrubs, spread fertilizer, plant bulbs and annuals, and lay mulch, the family decided to do everything except mowing themselves. They saved thousands of dollars in the last year alone. While others may think it worth paying someone else to free up their own time, this family found the loss of “free” time small and more than offset by the whole-family involvement.

Telecom hiatus. A family with teenagers has decided to make no cell-phone changes for 12 full months. No phone upgrades, Bluetooth devices, ringtone downloads, carrying cases, or the like. Their cash-flow review told them that it has cost them around $850 in the last two years just to have the newest stuff. They want to see how much worse life is if they are one year behind. These are just a few examples of what can come from paying attention to cash flow. Admittedly these folks had some small guidance from their advisor. But the potential benefits are clear. And curiously, I have found that the higher the net worth of the clients, the more fulfillment they got from these kinds of adjustments.

Why it matters

Because nothing around you stays the same. Energy for all of your needs is going to cost more. There is no avoiding it. Gasoline prices rocketed last year and most likely will go up again soon, as demand increases and/or supplies are reduced. Ditto heating oil. The price of electricity will probably face similar pressures. The worldwide demand for food commodities suggests those costs may increase. Healthcare costs continue to rise at an alarming rate, and it is highly likely that taxes will rise for all of us in the next two years. The point: if you turn a blind eye to what you can control, the things you can’t control will determine your fate.

In the movie Apollo 13 Tom Hanks, playing Jim Lovell, radios, “Houston, we have a problem.” The first action of the Mission Control engineers— who must devise a plan to save the crew from doom—is taking stock of the space ship’s resources. That’s key to control and a solution, . . . not just in the movies.

So maybe ask yourself: do I have a handle on all the available resources?