The Flow Of Money

During our lifetime, we make financial goals. These might be short-term goals such as having enough money around to spend on car repairs or a summer vacation. Or they might be longer-term goals such as saving for retirement. Of course, a spending plan is the key to having success with both of those. But that’s a different topic.

Image of a canal courtesy of PexelsWhether it is a plan for spending, a plan for investing, or a plan for savings, each needs to be monitored on a regular basis or they can go off track. I recently found an interesting concept that looks at water flow as an analogy for evaluating the status of goals. It was originally by Howard Thurman and he was using it as an analogy for the type of person you are or may want to strive toward. But I’ll use this as a basis for managing financial goals.

The Canal

A canal is a body of water that is free-flowing and always moving. It has a fresh source and has a fresh exit of water. Since it is always moving, it provides a continuous source of water as long as the water continues to come into the canal. It represents the moving of money toward goals in a free-flowing and unrestricted way.

The canal of a spending goal is that one is keeping track of the expenses against those goals. It is looking at a regular basis to make sure that you are on-track. When the waters of the spending plan change, you are quick to sense the change and adjust the spending plan appropriately.

When it comes to savings, the canal is one who is consistently putting away that amount of savings desired. As the canal flows, so does the savings into the savings account. The savings is building toward your goal.

When investing, the canal represents your regular contributions toward the investing goals. It is also revisiting the investments on a regular basis to make sure they are contributing toward the overall goal. Because the canal is a channel toward a destination, changes are not made due to short-term fluctuations in the investment values, but view from the longer-term perspective. A canal can go for hundreds of miles and a quarter-mile section is but a blip in the journey.

The Reservoir

A reservoir is a large body of water that helps provide a source of water. It has water flowing in and water flowing out like a canal. It can overcome the lack of water flowing in for a period, but not for a long period.

For the person working with a spending plan, this may be having that plan and tracking the expenses, but not comparing the expenses against the plan regularly. The goals are there but the measurements to see if one is still on-track is missing.

For someone in a reservoir state with savings, this represents having started strong with savings but finding distractions along the way. Instead of being diligent in saving every month or week, there are gaps in contributions. Saving continues, but not at the same initial rate with the result that the time frame for the goal is pushed out. Not this year, but maybe next year becomes the mantra.

Likewise, when it comes to investments, a reservoir state has that solid base of investments but the plan to regularly contribute to them slides at times. Other things get prioritized higher and that causes a delay in the overall goal.

The Swamp

The swamp is already famous from the past couple of years, but I’m not talking about that arena. I’m also aware that a swamp is now identified as an ecosystem of its own, but for this discussion I’ll use the definition that Thurman used in the late 1950s. In this case, a swamp has water in it but it is stagnant. The water in it is unusable. Water will flow in, but it does not flow out and accumulates. It only becomes useful when the stagnant water is flushed away by fresh flowing water both in and out. It represents something that needs to be drained and removed or stopped.

In the case of a spending plan, it is stagnant if it is no longer used. The plan was created and expenses are no longer tracked, and the plan itself goes into a drawer and never looked at. It will result in a failure to control spending.

Likewise, a stagnant savings plan is one in which the money may flow in, but it is used up for purchases other than the original goals and those original goals are never met. It was as though there was no plan to begin with for savings. An if I can when I can attitude will prevail over a savings plan in this situation.

A stagnant investing plan could be considered one of buy, hold, and forget. Investments were made based on careful analysis of an appropriate mix of instruments, but once made they were never reviewed. No one ever goes back to see if they are still appropriate for the current time in the economy as well as the phase of life one is in. Back in the 1970s, there were stocks called the Nifty Fifty that if you bought and held onto them you would do well with your investments. They were touted as stocks to buy, hold and forget. However, 50 years later many of those companies are gone. One of those companies was Brunswick (the bowling lanes and bowling ball company). The sport of bowling isn’t nearly what it used to be when Chris Schenkel was hosting competitive bowling shows every Saturday afternoon.

Get The Water Free-Flowing Again

Where do you identify with your financial goals? Are they a free-flowing canal, a reservoir, or a swamp? An important conclusion is that regardless of which category you find yourself in now, each of these can be refreshed with the addition of water in the form of renewed attention. Likewise, it is possible to reverse the situation with investing to get back on track. To refresh the spending plan and restart the tracking process to get back on-track. To renew the focus on goals with savings and regularly flow money toward these goals.