Effective Cash Inflow matters the most

Assume in one job, you earn 10,000 units of your national currency (UNC). How much do you need for your lifestyle maintenance? Let's say 5,000 UNC. Now, imagine another person. This individual earns 10,000 UNC. But her /  his lifestyle needs 5,500 UNC.

Forget about the duration. Be it a monthly income or quarterly revenue. That's not the point. You can say, the time-window is same for you and that other person.

Here is the question, can we agree about this conclusion below?

"You are 500 UNC wealthier than the second person."

Of course, how a person uses her / his earnings is nobody's business. So, the idea of Savings-mean-Wealth is subjective. It varies for each human being. What we should think about, is the reasons which make the person 2 spend more.

Anyway, a Cash Inflow means you get cash coming towards you. It can be your Salary for the job you do. Or your quarterly revenue from your Services or Products. We shall group them all under a single label:

Earnings mean your Cash Inflows

Same way, a Cash Outflow means the money is going away from you. The food you eat, the fluids you drink... they need your cash. And many more complicated ideas appear in Commerce, Finance and Economics. We shall group all these as Spendings.

Now, in a simple concept of Profit, you add all the money you invested in your Services or Products. We shall use the word Experiences to replace the phrase 'Services or Products'. Then, you get your Profit by knowing the difference between your Investment in Experiences, and the Price which you get.

At a small scale, this website does not cost much. Instead of wasting the cash on the fast-foods or profit-less lifestyle goods, I put some money in the website. So, this action means I invested some amount in this site.

Let's make the cost of website 1,000 UNC, just for explanation.

If I can sell you this Experience for money, I can calculate my Profit. Let's say that I earn 500 UNC from the people who read this blog. Thus, I get my profit.

Selling Point You Paid Me - Cost of Experience I Invested

= 500 - 1,000

= (-) 500 UNC

Thus, my profit would be a negative 500 UNC. Instead of Profit, we can say that my Effective or Net Cash Inflow would be negative 500 UNC. From the concept of Profit, you can say that I am in Loss.

Because a Negative Profit Margin (NPM) of 50% is the result of my Sales. But you already know that starting a business always has a Period of Negative Profit Margin (PNPM). Let's say that every new business has a Period of NPM of 3 years.

In the first 3 years, each business pays money to give out Ads. Marketing costs money. And if you are dealing with Physical Experiences, you probably have to pay Rent. You are paying for the electricity. And if you work in a team, you have to pay everyone's salary.

So, when a business begins, it will start to generate Revenue sooner or later. But Revenue is not going to help your Business survive. At least, after the Period of NPM, you should have a Positive Profit Margin (PPM). And it should be a strong number.

Why so? Because you may have to 'cancel some orders' or pay for Repairs, Renewals and more Equipment. Your Selling Point or Price should be realistic for these reasons.

Then, why worry about Cash-Flows?

Your Profit-Loss maths is a good tool. But whether you are a job-going person or a gig-doing person, you need to account for some interesting points.

For example, how much do you spend every day to travel to your office?

If you work from home and earn 10,000 UNC, your answer might be 0 UNC. But if you travel to a different area of the same city or region, your answer might be Non-zero. Let's say that you must spend 1500 UNC for traveling. This number should include only your Work-Days, for now.

Similarly, the person who works from home (WFH) must spend 1600 UNC for Professional Software tools, websites, advanced internet connection and special hardware equipment.

If we stop here, we notice that the WFH person is spending 100 UNC more than Office-going one.

In real life, Cash Flows happen with every Income Model. If we look at only one aspect, such as the Traveling Costs, the person doing WFH 'appears' to be wealthier. I mean, s/he does not spend 1,500 UNC like the office-going individual.

It's when we look at many different 'flows' of cash movement, we realise the complex nature of wealth.

Taking this to Bigger Scale

A human, who is doing a lot of Work From Home effort, has to spend a lot of time with electronic devices. And the traveling office-employee has to suffer with physical pain and energy drain.

If we include the aspects like Medical Conditions, Health Hazards and Lifestyle Quality, the idea behind the Cash-Flows becomes a philosophical dilemma.

On one hand, you can avoid the physical and psychological pain, and you'd earn less. Yet, by working harder, you might earn more money in short time-span. But it is possible that your Health Maintenance Costs (HMC) would be higher. You can earn a lot of money now, but your body and brain will make you pay for it later.

Also, leading a too relaxed life has its own downsides. One way or another, each of us is going to grow old, start having Medical Issues, and wait in some hospital.

And the idea of Cash-Flow can work with International Trade, Bank Deposits and even the quality-time you spend with your friends and family.

Endnote about the Limitations

As we've noted above, Cash-Flows seem easy, but they can drive you crazy. For simplification, you should focus on your top 5 sources of inflows and top 5 reasons of cash-outflows. Your cash inflows should be always higher than your cash outflows, otherwise you'd have to change your lifestyle, switch your jobs or modify your business strategy.

And if your tweaks don't improve your Net Cash Inflow, you'll have to shut down your shop or cancel your trip to Mars.