Analogy is one of the most effective teaching tools. By showing similar relationships in the familiar and concrete to the new and abstract, it becomes much easier to illustrate the relationships to the inexperienced. One of the most concrete analogies I have seen to explain abstract concepts is in plumbing. I have seen plumbing used to explain such diverse fields as electricity to organizational systemic behavior. Plumbing also is a great way to illustrate the flow of money.
In every household, there is income which consists of the water source and a set of expenses that serve as a drain. Most people have a drain that is large enough to drain the bathtub nearly as fast as the water flows into it. Not only is one required to keep filling the tub by working hard, but also should something disrupt the flow of water, such as a bout of unemployment, the tub quickly drains and fundamental needs of food and shelter become difficult to have.
I started working when I was 13 years old. I have always worked and worked hard. One of the best things that can be instilled in a young person is a work ethic, but a work ethic without an ability to manage personal cash flow only serves to help make everyone else more well off. When I started working, I earned some money and I was able to buy a few nice things, but one of the lessons I learned far too late is that when you buy something that doesn’t pay you back, that purchase only serves to make the seller richer and you poorer. Diligent efforts must be made to make some portion of your earnings work for you over time and that only happens with a combination of saving and investing.
I will be discussing more about how to manage cash flow in the weeks to come. But it is fact that one will never get ahead financially unless one learns to reduce expenses sufficiently to divert some income into savings and investments.