Manage Your Finances Through Cashflow Management

By MicaR | Online Venture | 30 Mar 2024

In order to manage your finances, you need to budget. Making a budget means you are trying to manage your expenses according to your income. Therefore, the first step of money management is to make a budget. You need to make your budget every month, and you need to strictly stay within your budget. Staying within your budget means you are not spending more money on any category that you have actually set a budget for. Let’s say you have set up a $100 budget for entertainment, if you spend all money before your next payment cycle, you should not spend extra money on entertainment for the rest of the month. Making a budget will help you save money.

In order to budget, you need cash flow management skills Cash flow management means tracking your expenses and income. While no one expects you to become a maths genius in order to start building your finances, you sure need some mathematical skills to calculate your income and expenses. If you are not good at math how you can know where you should cut your spending and how much spending you need to cut? You need to be good at managing money to build your wealth.

What is Cashflow Management?

Cash flow management is a method of managing the cash flow of a business. Cash flow means the money that comes in (income) and the money that goes out (expenses). Managing cash flow can be done in numerous ways, however, the most common method is by keeping an eye on the money coming into a business through various sources like sales, investments, etc. and controlling the money going out in the form of various expenses such as capital investments, salaries, operational, etc.

The primary goal of cash flow management is to have enough money flowing into a business so that the business can not only cover all of its expenses but also have surplus money that can be used in the future and also shared as profits among investors.

The concept of cash flow management is also implemented in personal finance. Cash flow management in personal finance means making a record of income and controlling expenses so that you have surplus money that you can save for your emergencies and also invest in the market.

The purpose of cash flow management is to improve your finance so that you will have more secure finances in the future. Cash flow management skills will make you financially free.

How to Bring Cash Flow

What should you look for in your investment? When it comes to making an investment, what should you actually look into?

Well, you need to look for cash flow. In other words, when you invest in the market, your investment should bring you cash. When you invest, the value of your asset will gradually grow, however, this is not all you should look for in your investment, your investment should also give you a return regularly. For example, if you invested in the stock market, your stocks should provide you dividends regularly. You bought stocks for $100 and it because $120, this is not the only thing you should look forward to, your $100 should also bring you a 10 percent return or a $10 return. Likewise, if you invested in real estate, your real estate should not only gain value but also bring you monthly income in rental fees. If you invested in a business, your business should bring you cash.

If your investment does not bring you cash flow, there is no point in investment.

How Not to Run Out of Money

You will never run out of money in three conditions:

You build emergency funds: When you have emergency funds, you will have money when you need the most. How much money should you have in your investment funds depend on your income level and saving habits, but I would say 4 months of monthly expenses would be fine. 

Investment: If you have invested, you can sell your equity and get cash whenever you want. The investment will also build your regular income through return on investment.

Liquid assets: If you have liquid assets such as stocks, gold, or even cash, you will never run out of cash as you can convert your liquid assets into cash whenever you want.

Apart from these three methods, you will also never run out of money if you have an income source. When you have a job, self-employment, or a business, you will always have cash at your hand.

Learn How to Manage Your Cash Flow

The best way to handle your personal finance is by tracking your income and expenses. Tracking your income means you know how much money you are making every day, and tracking expenses means how much money you are spending every month and what categories you are spending. When you track your income and expenses, you will find out whether your balance is negative or positive, negative balance sheet means you are spending more money than you are actually earning, and having a positive balance sheet means you are making more money than you are spending. When you have a positive balance sheet you can save and invest. This is called Cash Flow Management. You can learn how to manage your cashflow through Personal Finance Forum

How to Control Cash Flow

Cash Flow is the money you receive through your work, business, product, or investment. Cash flow ensures that your finances are on track. When there is cash flow, you can build retirement funds, and emergency funds, and also invest. So, how do you ensure that there is a constant cash flow?

Well, you will have to work harder and smarter to build an income from various sources. A job or employment can bring you cash flow. Likewise, investment and business can bring you cash flow.

So, how to make sure that you are in control of your cash flow?

You need financial intelligence to cash flow. However, financial intelligence is something that no one teaches you, you don’t get practical financial education in schools and colleges. You will have to study on your own to gain financial education and build your financial intelligence.

Financial intelligence is the ability to control cash flow. When you control your cash flow, it ensures that money comes in regularly.

Controlling cash flow means you make sure that the money you generate is used properly. The proper way to use your money is by buying assets and making investments that bring you cash flow. Controlling cash flow means, you don’t spend on liabilities.

How to Maintain a Cash Flow

They teach you to go to school and get a job. Once, you have an income source, you will start paying taxes. They teach you about taxation, however, they don’t teach you how to manage your money.  Most of the money you make will go through tax. Then they tell you to buy a house, get a car. These things are not assets, they are liabilities as you will be spending money to maintain a house and car (insurance, taxes, maintenance, etc.)

They don’t teach you that instead of buying a house, invest in real estate and build cash flow by collecting rent. They don’t tell you to buy a taxi instead of a car. If you buy a taxi, you can build cash flow.

A lot of players make millions in their 20s when they are actively playing. By the time they reach their 40s and can no longer play, they become broke. Do you know why? That’s because they cannot control cash flow.

College degrees are important because education makes you a skilled person, knowledgeable person, however, a degree does not teach you to maintain cash flow.

You can maintain your cash flow only when you build an income source that is not only passive but also has low maintenance.

How to Build Money Management Skills

Seriously speaking, you can not afford to have a financial advisor. Only businesses, big companies, and rich people can afford to hire financial advisors. Not all people are financially literate, so it is very important that you learn about finances. Learning finances does not mean you will have to become an expert by enrolling in college and university in business, finance, and investment class, you can read books on finances, and watch personal finance coaches on youtube to build your knowledge. You will have to build your financial literacy and money management skills by reading and watching experts talk. Managing finances, especially personal finance, does not require expert-level skills.

The golden rule of personal finance, in my opinion, is the rule of 50/30/20. This rule implies that you make a budget and allot your budget according to the rule of 50.30/20 where 50 stands for 50 percent for essentials, 30 percent for wants and wishes (including fun and entertainment), and 20 stands for saving. You should keep your expenses for essential items under 50 percent of your total income. If you spend more than this, you will be in financial trouble. You should limit your wants and wishes to under 30 percent and have to save at least 20 percent of your income. You can learn money management skills through Finance Questions and Answers

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