Funding Your Stock Program

If you're going to invest money in stocks, the first thing you need is . . . money! Where can you get that money? If you're waiting for an inheritance to come through, you may have to wait a long time, considering all the advances being made in healthcare lately. What's that? You were going to invest in healthcare stocks? How ironic. Yet, the challenge still comes down to how to fund your stock program.

Many investors can reallocate their investments and assets to do the trick. Reallocating simply means selling some investments or other assets and reinvesting that money into stocks. It boils down to deciding what investment or asset you can sell or liquidate. Generally, you want to consider those investments and assets that give you a low return on your money (or no return at all). If you have a complicated mix of investments and assets, you may want to consider reviewing your options with a financial planner. Reallocation is just part of the answer; your cash flow is the other part.

Ever wonder why there's so much month left at the end of the money? Consider your cash flow. Your cash flow refers to what money is coming in (income) and what money is being spent (outgo). The net result is either a positive cash flow or a negative cash flow, depending on your cash management skills. Maintaining a positive cash flow (more money coming in than going out) helps you increase your net worth (mo' money, mo' money, mo' money!). A negative cash flow ultimately depletes your wealth and wipes out your net worth if you don't turn it around immediately. The following sections show you how to analyze your cash flow. The first step is to do a cash flow statement.

Dot-com-and-go

If you were publishing a book about negative cash flow, look for the employees of any one of a hundred dot-com companies to write it. Their qualifications include working for a company that flew sky-high in 1999 and crashed in 2000 and 2001. Companies such as eToys.com, Pets.com, and DrKoop.com were given millions, yet they couldn't turn a profit and eventually closed for business. You may as well call them "dot-com-and-go." You can learn from their mistakes. (Actually, they could have learned from you.) In the same way that profit is the most essential single element in a business, a positive cash flow is important for your finances in general and for funding your stock investment program in particular.

Don't confuse a cash flow statement with an income statement (also called a "profit and loss statement" or an "income and expense statement"). A cash flow statement is simple to calculate because you can easily track what goes in and what goes out.

With a cash flow statement (see Table 2-6), you ask yourself three questions:

^ What money is coming in? In your cash flow statement, jot down all sources of income. Calculate it for the month and then for the year. Include everything, including salary, wages, interest, dividends, and so on. Add them all up and get your grand total for income.

^ What is your outgo? Write down all the things that you spend money on. List all your expenses. If possible, categorize them into essential and nonessential. You can get an idea of all the expenses that you can reduce without affecting your lifestyle. But before you do that, make as complete a list as possible of what you spend your money on.

^ What's left? If your income is greater than your outgo, then you have money ready and available for stock investing. No matter how small the amount seems, it definitely helps. I've seen fortunes built when people started to diligently invest as little as $25 to $50 per week or per month. If your outgo is greater than your income, then you better sharpen your pencil. Cut down on nonessential spending and/or increase your income. If your budget is a little tight, hold off on your stock investing until your cash flow improves.

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