Business Hub

Go With The Flow!

You’d be excused for thinking your family’s “cash flow” is simply earning an income to pay your bills. And you wouldn’t be the only one! However, that’s a very passive outlook – it’s merely survival. What you want is to prosper. Budgeting and cash flow planning are essential tools for any family’s successful financial future. If you think of it this way, every business has someone appointed to look after the financials – whether it’s the owner/operator or even the accountant in a small business, or the Chief Financial Officer (CFO) in a medium or large business. Without which, it’s almost impossible to manage their cash flow. If you view your own financials in a similar fashion, with yourself as the person responsible for your family’s P&L each month, conducting a monthly review of incomings and outgoings, then it’ll also be a lot easier to stay on track to achieve financial freedom. And if you do this monthly, it’ll also be easier much easier to compare your spending more holistically, over time. You see, genuine cash flow management — in a household sense — is understanding the components of where the money comes from, where it goes and why, all with the objective of creating a better life for you and your loved ones. Some of these cash flow components include:
  • Income, such as salary and investments. In some cases, you can control your income — for instance, working longer hours or a second job —but in most cases, control is limited.
  • Fixed expenses, which are costs over which you have little control, like rent, mortgage and utilities. Sure, you can move to a smaller home or an area where property costs less, but you’ll still have expenses.
  • Discretionary expenses, which are those that involve choice and therefore more control. It’s why some folks shop at Aldi and others at gourmet grocery stores
  • Taxes, which for most people are an automatic deduction.
  • Savings, which are a chance to capture cash.
The point is simple: the choices you make heavily impact your wealth creation. The secret to boosting your cash flow is increasing the assets that provide you with positive cash flow (money in) and reducing the liabilities that cause negative cash flow (money out). As an example, discretionary expenses like food, clothing and personal care items can become even more negative if you buy them on a high-interest credit card. So, always pay attention to the details. Bank service charges, overdue penalties, credit card interest, forgotten subscriptions are all small items, but they can easily add up to tens of dollars each week. Imagine the cost of these “small items” in a long run. Property plays an important role in your overall cash flow story. Although a home usually appreciates in value over time, your mortgage is likely to be your single biggest household expense. Even if you don’t own a home, your rent is a fixed expense that reduces your cash flow. The good news is that housing is one of the best places to stem negative cash flow. Having an understanding of the value of your property is very important in making informed financial decisions and strategies. For starters, you can explore the option of refinancing your current home loan. Replace it with a brand new one boasting better terms, like a lower interest rate or a longer repayment period, and this could in turn save you hundreds of dollars each month. Indeed, thousands over the life of the loan. A good tip is to review your home insurance policy every year to make sure you aren’t overpaying. If you feel you are, shop around for a better deal. If you have a granny flat, spare room or even a garage, consider renting it out for additional income. Know that you don’t have to depend on an employer for all of your incoming cash flow. It can also come from owning different kinds of assets. If you’ve got too much space, you could downsize to a smaller - and less expensive - home. Imagine the feeling of being in control of your spending and especially your savings, in turn creating choices in life. A wise person once said “the true marker of financial intelligence is not how much money one makes but how much one keeps”.   Disclaimer: The content within is general or publicly available information only. Speak with your accountant or financial adviser for advice on your specific circumstances.