Understanding your cashflow will help us create wealth for your future financial freedom

We’ve all got limited resources and are trying to make the most of these resources to achieve our long-term financial needs. Understanding your cash flow is the first and most important step in any given strategic financial plan.

Understanding Cashflow

Simply put, cashflow is the difference between the amount of money you make (income) and the amount of money you spend (expenditure). When your income exceeds your expenditure, you’re deemed to have a cashflow positive position. In other words, you have a surplus income or savings in the bank. In the event your expenditure exceeds your income, you have a cashflow deficit or debt.

Having a cashflow surplus or savings position will allow you to live your lifestyle for today as well as plan ahead for your future financial freedom. You can buy the new car, go on holiday, go out for dinner, pay for children’s education, save for a rainy day as well as invest for the future.

Having a cashflow negative position is likely to lead to living paycheck to paycheck which leads to potentially increasing your debt to cover daily expenses. This could lead to more debt and eventually could lead to losing your assets and in some severe cases, could lead to you becoming bankrupt. If the debt is not managed properly this could lead to more stress for you and your family.

There’re simple steps you can take to manage your cashflow.

Build a budget

A budget will assist you to understand what comes in and what you spend your money on. The temptation in building a budget is to make everything look pretty to convince yourself that you’re in the black. But wait! that’s helping no one. To stay true to your budget, it is important you follow the following steps;

  1. ​Go through your bank statements to capture every single item you’ve spent money on in the previous 12 months.​

  2. Take your net income. This is the amount of money that clears in your bank account as income.

  3. Enter these in a budget calculator – Fill out the form below for your free copy.

  4. At the end of the exercise, you’ll see your cashflow position. If you’re in a surplus position, that’s great.

  5. Now track the following 12 months’ expenses and repeat these steps at the end of the 12 months.

  6. If you’re in a negative position, you need to contact your Adviser who can assist you in developing a debt management and savings plan.

Have a goal

Having a goal will help you with creating a budget you’re likely to stick to. Remember, it does not have to be a big goal. It could be as simple as, meeting a savings target, or saving for a holiday, a new pair of shoes or a big ticket item as saving for a deposit for a home or saving for an investment. By having a target, and a small achievable target, you’re more likely to stick to your budget.

Find a coach

Yes! you can do most things yourself. But how do you hold yourself accountable? Maintaining a strong cashflow position is all about accountability and sticking to your plan. You need someone to hold you accountable and also help push you on in the months where spending takes over savings. Sometimes, a coach does not have to be a Financial Adviser. It can be as simple as an App. Most bank accounts will come with a savings goal App. You can set your savings target and lock that in. This will keep you accountable each time you either hit or drift from the goal. Of course, having a Financial Adviser by your side will go a step further and help you understand different strategies you can implement to assist you in meeting that goal.

Now that you’ve got the basics right, let’s find time to have a chat to take it to the next level. We can implement other strategies to push your cashflow position even further ahead. Our Wealth Advisers will talk to you about your strategies to help manage your cashflow in a tax efficient manner. By understanding how you can achieve this, we can work together in creating a long-term plan for your future financial freedom.

Fill in the form for your free budget planner