The concept of managing your personal cash flow is to ensure effective use of the funds available to you in order to maximize profitability. Effective management of your funds can help you build wealth over time and save you from financial pits. By intentionally channeling the movement of your cash to needs rather than wants, assets rather than liabilities, you're taking directed steps towards financial freedom which gives you time, control and options.
Effective management of your funds can help you build wealth over time and save you from financial pits. Cash flow is the movement of cash and its equivalent, in and out of a business, or for an individual, over a period of time. The idea of personal cash flow management is to majorly channel the movement of your cash in such a way that it will bring more profit to you.
The following are the basic steps to effectively manage personal cash flow:
1. Personal cash flow evaluationA personal cash flow evaluation will help you make intentional and realistic decisions on how to channel your cash, list your sources of income in detail (cash inflow), and how your money is dispensed (cash outflow).
The difference between your inflow and outflow is your net cash flow. The outcome of the difference will either be a positive or negative net cash flow. A positive net cash flow signifies that you have been prudent in handling your cash while a negative net cash flow signifies unhealthy management of funds.
2. Effective budgetingA well-managed budget is the first step to having effective personal cash flow. To create an effective budget, calculate your total income, list out all your expenses, then deduct your expenses from your total income. Also, set aside a certain amount to invest.
There are different types of expenses. The two major ones are fixed expenses and variable expenses. Fixed expenses are majorly payments you must cater to such as rent. Fixed expenses are predictable; this means that there are particular times when such payments are made.
The second type of expense is the variable expense which can also be referred to as a discretionary expense. Variable expense is not as predictable as a fixed cost. Variable expenses are costs that change frequently, depending on quantity or usage; groceries, gasoline, food are examples of variable expenses.
3. Savings and investmentsSavings is the amount you put aside for future use, which necessarily doesn’t yield interest over time, or rather yields a low interest. However, investing means to set aside a particular amount (capital), or its equivalent, in expectation of a particular benefit (interest) in the future.
Your monthly budget should include a certain percentage of investments. You can as well make use of an online savings platform to automate your savings and/or investments.
4. Practice frugal livingFrugal living is not equal to being cheap, rather it helps you to channel your expenses on the most important things. While being prudent with your cash, you can still buy quality needed items. Your cash flow management will tell how financially free you would be in the long run.
How you handle your cash flow will, to a large extent, tell how financially free you would be in the long run. At OVERWOOD, we are primarily committed to helping you achieve financial freedom, by investing your funds in safe, high-yield instruments.
How to Create a Zero Based Budget
Creating a zero-based budget might seem tasking, however, using the right digital saving and banking tools will make the process easy to start. With zero-based budgeting, you will understand how your hard-earned Naira is being spent (expenses, debt, and investments).
The Best Places for Your Emergency Fund
Having a fully covered emergency fund (three to six months of your living expenses) is vital to your financial health. Ideally, the best places to store your funds are in instruments that offer liquidity. This is the most crucial feature to consider when making your decision.
