Ten
Tips for Improving Your Cash Flow
Cash flow
– how money flows in and out of your household – is key to achieving personal
financial security. Without a well-managed and understood cash flow, you’re
less likely to be able to fund short-term and long-term financial goals. 
Unfortunately for many of us, the
cash flows out as fast – if not faster – than it flows in. Often we don’t
even know where much of it goes, which can create anxiety. Here are 10
ways to better manage your cash flow that can help improve your disposition
and make those goals come true.
Make a spending plan
Write down in a simple accounting
book all monthly income (salaries, investment earnings, child support)
and expenses (housing, car, taxes, groceries, clothing) for the past 6
to 12 months using checkbook records, pay stubs, and so on. Track current
spending for another two or three months, particularly those cash expenditures
that often go unaccounted. If you’re spending more than you’re bringing
in, identify excessive spending categories and cut back until inflow and
outflow match.
Set goals
Write down your goals, such as paying
for summer camp, buying a new car, or saving for retirement. How much will
each goal cost (factor in inflation for longer-term goals) and how much
you’ll have to put away each month to reach each goal.
Adjust cash flow
Can you put away enough each month
to meet all your goals? If not, you have three options: increase your income,
readjust or eliminate some goals, or lower expenses in other categories
to free up money for your goals (eat out less, buy a cheaper car, entertain
at home). Don’t try to accomplish everything at once. Gradually work goals
into your spending plan.
Pay yourself first
When you receive your paycheck or
other income, pay your fixed expenses, short-term savings, and long-range
goals first. That way, if things get tight during the month you’ll cut
back on discretionary spending, not your mortgage payment or college education
fund. Automatic deposits help make this process less painful.
Set up accounts for variable expenses
Insurance payments, for example,
may come once or twice a year. Divide the total annual insurance costs
by twelve and set aside that amount each month each month in a savings
account that you can draw on when the bill comes due. This helps even out
the monthly cash flow.
Establish an emergency fund
Set aside enough money in a safe
accessible account to fund "bare necessity" living expenses for three to
six months.
Alternate raises. Put your next
raise or bonus toward a goal, not your day-to-day spending. The next raise
or bonus can go toward improving your standard of living. This way you
can have save toward your goals and still have fun.
Involve the whole family
Include your children. Everyone has
to sign on to make the spending plan work.
Pay off credit cards
Misuse of credit cards sabotage cash
flow more than any other single factor.
Have some fun with your money
Free up some of your cash so you
can do fun things. Give everyone a little "personal money" they don’t have
to account for. This is a spending plan, not a starvation diet. |
