Easy Cash Flow: What's Your "Invisible Number"?

One of the services I offer is financial planning, and an essential part of every financial plan is understanding your cash flow. In a nutshell, your cash flow is what you earn, what you spend, and what you save. Spending is obviously using your money to buy goods or services, sometimes for fun and sometimes for essentials, and saving is taking today’s income and using it to buy more & better options for yourself in the future.

And here’s why cash flow is so foundational. When you have an effective way to manage your cash flow, all of the other decisions related to financial planning get easier. Conversely, if you don’t have a handle on your cash flow, everything else is much, much harder. 

For example, we can’t really figure out how much you should be investing until we know how much you need to keep in a cash savings account at all times for emergencies and such. And to know that, we have to understand how much you spend. Or we can’t have a conversation about whether you can afford a new house without understanding whether your cash flow will support the extra debt payment each month. Same thing with planning for retirement: we can’t really put a number on how much you would need in order to make work optional until we know how much you need to spend to maintain your quality of life. 

So, even though a financial plan can cover a very wide range of topics, you need to understand cash flow before you can make any other decisions.

There’s a simple equation that brings together the three elements of cash flow, which I’ve shared in the past:

Income = Spending + Saving

So you earn whatever you earn, and that money either goes towards paying other people, which is spending, or paying yourself, which is saving.

And there’s a push-pull relationship between spending and saving that I think is fairly intuitive: the more you spend, the less you can save, and the more you save, the less you have to spend. We don’t need any fancy calculators or software to understand that, right? It just makes intuitive sense that changing one impacts the other. Again, in financial planning we look at both sides of saving & spending, and I always want to prioritize making it as easy as possible to do the right things. I want to reduce the friction of making good decisions.

But today we’re going to focus on the saving half of the equation and one approach in particular that I think makes it incredibly easy to do the right things for your financial health. Since saving more money means spending less money, that means that if you’re saving the right amount, then you’re also managing your cash flow.

One technique I use with my clients to help make saving easier is to identify what I call your “invisible number”: some amount of money that you wouldn’t even notice if it automagically moved from your checking account into your savings or investment accounts each month or week or day. And this will be different for each person, but each person has an “invisible number”.

An easy starting example is $1 per day. Would you notice if a dollar disappeared from your checking account and then reappeared in your savings account? Probably not. That transfer is effectively invisible to you and doesn’t really impact your day-to-day life, but over time it creates a positive long-term benefit by increasing your cash savings cushion.

So the trick is to figure out what your own “invisible number” should be, and then automate that saving or investing so that it happens without you noticing. 

This approach, this invisible number, works incredibly well at helping people save without any extra thought or stress. And it tends to work best when the automated transfers happen as often as possible, so that each individual transfer is small enough that you don't really notice. Then, after you’ve done this for a few months and you can be confident that, yep, that automated transfer isn’t holding you back in any meaningful way, you should bump it up by some small amount. So if you’ve been saving $10 per day, try bumping it up to $12 or even $15 per day. If some time passes and you still don’t notice, bump it up again. 

Keep incrementally increasing your invisible number over time until you start to notice it in your daily life. Once you hit that level, you know you’ve reached the ceiling for how much you can save each month without it starting to feel like a drag on your lifestyle. Then just dial it back one notch and carry on indefinitely.

I like to tether the invisible number to something you would buy or pay for without even thinking about it, like the price of a cup of coffee or a bottle of beer or a sandwich from your favorite deli. Ok? Think of something that you would buy any day of the week without a second thought.

So here’s an example. The nationally listed price for a cup of black coffee at Starbucks is currently $3.65. Most people would buy a cup of coffee pretty much any day of the week without thinking about it, so it’s a good starting place. If we say that $3.65 is your daily invisible number, that works out to just over $25 per week. So let’s say that you automate a weekly transfer of $25 into a savings account. At the end of the year, you will have saved about $1300. Now, no one is getting rich on $1,300, but 1) it’s better than nothing and 2) it happens completely painlessly, without you even noticing. And that doesn’t include any interest your money earns along the way, so you’d actually have more than that in your account at the end of the year.

So now let's say you bump that invisible number up to $30 per week. That works out to $1560 per year. Again, you’re not getting rich on that amount, but it’s an extra $260 saved per year without you even noticing it. Then keep going: can you do $40 per week? Or $50? How about $100 per week? Maybe $200? How high can you go before you actually notice? I bet that for most people their invisible number is quite a bit higher than they would initially expect.

And when you find that number, when you start to notice your checking account feeling a little lean, you’ll have figured out the ceiling for your invisible number. If you back it off slightly and then carry on with those automated transfers, you’ll be saving in a way that doesn’t impact your lifestyle but also doesn’t feel like work.

Now, of course some people should be saving at a level that requires a little sacrifice. And that’s a harder conversation to have, and it’s sometimes necessary, but that’s a topic for another day. The point of the “invisible number” is not that it’s the only thing you’ll ever need to do so that your financial life works out. The point is to make it as easy as possible for you to do the right things for your financial health and to positively impact your cash flow. It’s very little effort with a lot of upside.

So here’s your challenge for the week: pick one expense that you would pay for without thinking twice about it. Doesn’t matter what it is, and it will be different for everyone. Then I want you to automate a transfer into a savings or investment account as often as you can for the daily equivalent of that expense. If your bank supports daily transfers, go for it. That’s awesome. If they let you do weekly transfers, multiply your invisible number by 7 and get started. If your bank will only allow monthly transfers, multiply your invisible number by 30 and then automate it. Make it as easy as possible to make the right decisions for your cash flow and your financial health. Then just let it cook in the background while you get back to life. Future you will be so happy that you did.

Ok, so figure out your invisible number, then automate those transfers. That’s your challenge for this week. 

If you want to have a conversation about whether your saving & investing line up with your best vision for the future, hit me up. This email address is always checked by yours truly.

Thanks,

Timothy Iseler, CFP®

Founder & Lead Advisor

Iseler Financial, LLC | Durham NC | (919) 666-7604

Iseler Financial helps creative professionals remove stress while taking control of their financial lives. We'll help identify current your strengths and weaknesses, clarify and refine your long-term goals, and prioritize decisions to improve your financial well-being now and later. Reach out today to take the first step.