Three Ways Accounting Can Make Us Happier

by Steven on December 14, 2009

“Happiness is a positive cash flow” – Fred Adler

In a business, cash flow is the “the excess of cash revenues over cash outlays in a give period of time (not including non-cash expenses)”.  If the definition sounds technical, that’s because it is: outside of accounting and finance readings, this isn’t a very common phrase.

In layman’s terms, cash flow is the amount of money in your bank account: if you have a large paycheck coming to you soon, but you are overdrawn, then you are cash flow negative.  On the other hand, if you have a lot of extra money in your account, but you owe it to others, you are (at the moment) cash flow positive.  So Adler is basically saying happiness is having more money in your bank account than you spend.  Simple, right?  And it applies:

1) How many fights in relationships are over money? This usually isn’t how to split extra cash, rather it is about not having enough at the end of the month; essentially, negative cash flow causes these issues

2) The happiest people I know live within their means. For example, a good friend, in 2005, lost his government job and spent about eight months looking for his next position. Yet he was (and is) one of the most positive people I know. One of his secrets? He lived on about half of his income, and the rest was put into investments and rare splurges.  In other words, he maintained positive cash flow for so long that he had the cushion to fall back on when he needed it most.

3) Cash flow is essential for most small businesses.  About 25 percent of new businesses fail in the first twelve months: the “cash is king” mantra suggests cash flow is one of the biggest causes of failure (as does Mark Cuban).  If you think your happiness is tied to being your own boss, then, Adler’s quote is true for you.

Looking back at the three examples, they are more about reducing misery than increasing happiness.  But maybe these are the same; if so, learning some accounting basics can increase our happiness.

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