Cash Flow Planning Is Not Just For Business
Cash flow planning is a very useful tool for businesses; however they can be helpful for personal finances as well.
Thinking about the future
When you’re young you feel invincible; it rarely occurs to you that one day you will no longer be young. You don’t think about how you will cope when you are no longer able to work. If you have children, you will most likely spend more time worrying about their future than your own.
The future can be quite worrying, so it’s important that we do all that we can today to alleviate some of those worries. We cannot predict the future, but we can try and minimize the impact of what the future may throw at us.
How can cash flow planning help?
Every month more and more families are finding it difficult to cope with the increasing costs of living. When you have people struggling to deal with paying for now, then it is understandable that they will fail to plan for the future. However, it is possible to improve your situation now so that you can look towards the future.
A cash flow statement is a plan which takes your income and measures it against your outgoings to assess your net cash flow.
Revenue for your cash flow plan can include –
• Wages/ salary (individual or household)
• Interest earned on all savings accounts
• Benefit payments
• Assets from houses/ car/ etc
• Anything else which generates an income
Outgoings for your cash flow plan can include –
• Rent or mortgage
• Utility bills (electricity/ gas/ water/ phones/ etc)
• Weekly/ monthly shopping costs
• Travel costs (petrol/ bus/ train/ taxi/ etc)
• Leisure (clothes/ books/ days out/ restaurants/ pubs/ etc)
• Anything else which you regularly pay
To calculate your net cash flow, you will need to subtract your outgoings from your income. If your income is greater than your outgoings, then you are considered to have a positive net cash flow. However, if your outgoings are higher than your income, then you are deemed to have a negative net cash flow.
If you have a negative net cash flow, then you may need to reassess your outgoings and see where you can cut down.
How can I improve my net cash flow?
If you currently have a negative net cash flow, or you want to improve your positive net cash flow, then the best way to achieve this is to look at your outgoings.
Start with the things that you want and don’t need (such as holidays or football season tickets) and work your way upwards. Once you take care of your wants, then you can work on your needs.
If you have travel costs, then see how you can make these cheaper. If you drive then, you can work out if public transport would work out cheaper. If you live near your place of work then maybe you can walk or cycle to work.
As you work your way through your cash flow plan, you will be surprised with some small changes you can make to reduce your outgoings.