Cash flow is the lifeblood of any financial plan. How we allocate the money coming in will determine both the present and the future of our families. While managing cash flow may not seem glamorous, it is undeniably the foundation of financial success.
Without thoughtful planning, no amount of income can guarantee financial security. It’s important to remember that “it’s not how much you make, but how much you keep” that determines your financial future.
As we progress through different phases, our cash flow challenges evolve. Early in our working lives, we focus on providing for essential daily needs – rent, food and travel. This stage often feels like a balancing act between survival and building a secure foundation.
However, for those fortunate enough to break free from immediate concerns, a new challenge emerges. The allure of wants. As our incomes increase, so does the temptation to indulge in non-essential items, and this is where the real financial battle begins.
This battle, between the pull of wants and the need for financial discipline, is universal. Psychologist Daniel Kahneman, who won the Nobel Prize in Economic Sciences, famously said: “Money doesn’t buy you happiness, but lack of money certainly buys you misery.”
While money can improve our quality of life, the continuous pursuit of “more” can lead to stress, dissatisfaction, and missed opportunities for long-term financial success. The real question becomes: what truly brings fulfilment, and what are the consequences of our spending decisions for our future selves?
The drive to accumulate more is deeply rooted in human evolution. Historically, the pursuit of more resources ensured survival, pushing past generations to create the world we now live in. In modern society, the underlying assumption of economic theory is still that “more is better".
However, in a world where most of us have surpassed the need for basic survival, this instinct may create more problems than it solves. Does having more actually make us happier, or are we trapped in a cycle of wanting more without ever feeling satisfied?
As financial life managers, we’ve seen the effects of this mindset first-hand. Many, despite increased incomes, fall victim to “lifestyle creep". Lifestyle creep occurs when people spend more as they earn more, often on luxuries they once deemed unnecessary.
This creeping consumption can go unnoticed for years, but its effect on long-term financial health is undeniable. As the late personal finance expert David Chilton said: “You can never have enough of what you don’t need.” The more we accumulate, the more we tend to want, leaving little room for future savings.
We’ve also worked with many wealthy families who have successfully navigated these challenges. These families often develop a personal philosophy around their values and they have a clear vision of what they consider a life well-lived.
For many, this philosophy shifts the focus from possessions to experiences. Studies, such as those from Dr Thomas Gilovich at Cornell University, suggest that spending on experiences, rather than material goods, brings more lasting happiness. Whether it’s family holidays, memorable dinners, or simply time spent with loved ones, these experiences tend to enrich our lives in ways that “shiny new things” cannot.
However, everything in financial life management comes with trade-offs. The allure of “more” often comes at the expense of tomorrow’s security. It’s a tragic realisation that, for many, the true cost of overspending becomes evident only when it’s too late. We’ve seen clients who, in their later years, regret not having planned more intentionally for the future.
The invitation before all of us is to let go of the relentless pursuit of “more” and instead embrace the concept of “enough". Everyone’s definition of “enough” is unique. For some, it may be financial independence and the freedom to retire early. For others, it could be providing for their children’s education or simply having a comfortable life free of financial worry.
No matter what your personal “enough” is, it’s worth noting that most of us today live lives far beyond what our grandparents could have imagined.
The key is to clarify what is truly important to you and bring more intention to your spending and investing. After all, consumption is not inherently wrong. What one person considers a luxury, another may see as a necessity. The important thing is to make deliberate choices that reflect your values and long-term goals.
Sam Instone is co-chief executive of wealth management company AES
