Managing Your Cash Flow

To better handle your money, it is a great idea to monitor your cash flow, which is the total money coming in and out, especially the liquid assets. Better management of cash flow can prevent issues for payments in your personal life, as well as help grow and smartly operate a business. 

The first steps to improving your cash flow management is understanding the components of it. Each month, you have cash inflows and cash outflows, the goal of better managing your cash flow is increasing your inflows (income and other forms of positive returns) and lowering your cash outflows (fixed and variable expenses like rent, utilities, car payments, and groceries). 

When you first put together your cash outflows, you have to find ways in which you can get yourself with a positive amount of money at the end of the month, going into the red each month will make it harder to pay off your bills each month and send you further into debt. So the first step is to see where you can increase your inflows, that can be through a raise in your job, getting a second job, or working your way up to a new, higher paying job. After you look at your cash inflows, you have to take a look at where you are spending your money and how you are spending it. As you view your spending, see where you have recurring charges monthly you don’t use, where small charges you have everyday continuously add up, such as buying coffee everyday at Starbucks. Small spending and automatic recurring charges are things you forget to close down sometimes, and getting rid of those won’t change your lifestyle much at all, but it will save you money. (How to Better Manage Your Cash Flow)

To cut down on costs, it is important to pay debts off, and it is a good idea to target the debt with the highest interest first. If the bills and loans you have on your plate are too steep to pay off, you can refinance the loan in order to help you out. High debts and interest rates will keep your cash outflows high and keep you in a bind with monthly finances. 

Once you see how much money you have coming in, and see where you can save money monthly, it is time to create a budget. Creating a budget will allow you to plan for how much money you are going to spend and it will ensure your essential needs will be taken care of. For safety measures, it is smart to plan your budget out almost 6 months in advance. This will help you see where you may have tougher months to pay the bills and see how much you can save for making bigger purchases in the future. (What Is Budgeting? What Is a Budget)

Just as it is important in your personal life to manage cash flow, it is just as important for businesses to be diligent and smart. For a business, they need to follow three key elements, their accounts receivable (what customers owe), accounts payable (what you owe suppliers), and shortfalls. For a business, it is important to know their break even line, the point where the business becomes profitable. This gives a company something to work towards, like a benchmark, and will help project the cash flows of the company. This won’t happen to all companies, but some will experience shortfalls, which is important to have cash reserves on hand to take care of these unexpected needs for money. For a business, they want to have their customers pay fast. (Quickbooks.)

I learned a lot about cash flows and outflows in a personal finance class I take at MSU, but I learned much more of it by researching templates of cash flows, as well as how people and businesses manage theirs. Researching this, I realized it had a direct connection with my blog post last week about technology and personal finance. A lot of those applications I suggested were meant to improve personal budgeting, and they can be used to save money from unnecessary spending. Monitoring your cash flow is an important part of life, it can save you from lots of stress and troubles being able to have extra money at the end of the month and not constantly trying to find your way out of debt. Many people won’t take the time to look closely at their spending, but it will help in the long run. 

Grant Williams

Chang, Sarah. “6 STEPS TO IMPROVING PERSONAL CASH FLOW, SO YOU CAN BE LIKE YOUR OWN CFO.” SoFi, Social Finance INC, 21 Mar. 2017 https://www.sofi.com/blog/6-steps-improving-personal-cash-flow-can-cfo/

“How to Better Manage Your Cash Flow.” Entrepreneur, 10 Dec. 2003, www.entrepreneur.com/article/66008.

“What Is Budgeting? What Is a Budget?” MyMoneyCoach, Credit Counseling Society, www.mymoneycoach.ca/budgeting/what-is-a-budget-planning-forecasting.

Quickbooks. “10 Tips for Better Managing Cash Flow.” Intuit Quickbooks, Intuit, INC., quickbooks.intuit.com/r/financial-management/10-tips-managing-cash-flow/.