Increasing Cash Flow for 2010, the Intelligent Money Moves
The easiest way to have more free cash flow is to analyze your current expenditures and figure out creative ways to lower the outlay. This will provide a solid foundation for when we can once again start to grow the top line!
1) Pay down high interest rate debt.
Currently interest rate on savings is at historic lows so if you have been putting aside cash for a rainy day it might make sense to take that cash and pay down any high interest rate credit cards or other consumer debt you might have. You always have the potential to use the credit cards again in the event of an emergency but simply taking $10,000 in cash earning .5% interest and using it to pay down a 12% credit card or other revolving lines of credit could save you $100 per month.
2) Health Savings Accounts (HSA)
This is a hidden gem for self employed professionals. Rather than funnel thousands of dollars a year into health insurance premiums sign up for a high deductible, low premium HSA plan. The benefits are:
a. Pretax contributions into the HSA up to $5,000 per year
b. Amounts contributed can be rolled over for future years and invested similar to an IRA into Stocks and Bonds.
c. Amounts in account grow tax free and can be taken out tax free if used for qualified medical expenses.
Using a typical example of a family of four who pays a standard premium of $1000 per month with a $200 deductible and $20 per visit co-pays the total out of pocket costs are approximately $12,500 vs. an HSA account which has premiums of $200 per month and a deductible of $8,000 or out of pocket costs of $10,400 saving over $2000 per year or $150 per month at a minimum. If you were healthy during the year you would have saved $5,000 in your HSA and paid $2,400 in premiums which is a $5,000 difference in cash flow with the best part being that you can use the $5,000 the following year! Basically you are saving cash even when unhealthy and in healthy years developing a saving account to help pay for unhealthy years….taking money away from the insurance company and putting it in your pocket.
3) Solar Panels
Incentives are at an all time high with the Federal government, state government and local utilities offering rebates and grants to help generate clean energy. This is a great long term investment in your home and will generate long term savings on your monthly utility bills. A typical solar system will cost the homeowner $15,000 after all of the grants and rebates and should save approximately $100 per month in electricity usage or an 8% annual return on investment (far greater than the .5% earned in a savings account).
In addition the solar panels will provide some residual value to your house at resale and will also help protect against future inflation in energy costs. Assuming a 5% increase in energy costs in 5 years the $100 savings would be saving you $128 per month or earning 10% a year and in 10 years you would be over a 13% annual return on your investment!! Solar Panels have a 30 year investment life so this is a very profitable place to invest your capital and you will be doing good for the environment.
4) Home Ownership Accelerator
A tool for the financial savvy it can slash the amount of time you pay your mortgage in half saving you ten’s of thousands of dollars in interest. By utilizing your normal spending and saving habits and using a unique relationship between your home loan and your checking account this financial product can have you mortgage free in 12 -15 years!
5) Combine Insurance
A simple but often overlooked strategy is to combine your professional, home, and auto insurance policy’s. This can provide a discount of up to 25-30% on the combined package. Using a two car, one home plus professional liability insurance package of $3,300 annually this can save over $50 per month for a quick phone call.
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