Cash flow is ultimately what you are managing when you are budgeting. The amount of cash flow you have, determines how quickly you can reach those big financial goals that you have. If you have great control over your cash flow, chances are, you are going to reach your goals quickly. When you have to send your money to a specific line item, you are giving up that control of your money.
Ultimately, you want to have an even cash flow. What that means is that the same amount of money that goes in, also goes out.
Now, that doesn’t mean I’m telling you to spend every dollar of your income. But, I am saying that you should be doing something with every single dollar that you get. This makes your cash flow equal, everything that comes in, gets a job going out.
When you have a negative cash flow, you are spending more than you have coming in. That’s a major problem and one that needs immediate attention. This is when debt racks up and makes it incredibly difficult to make any kind of financial movement.
When you have a positive cash flow, this is a good situation to have. It means you have more coming in, then you have going out. However, if you just let this positive cash flow sit in your account, you’re not improving your financial situation.
This is why you need to have equal cash flow, everything going in, must have a job going out. You can’t just let money sit in your checking account doing nothing for you. It should leave your account to do work for you, earn some interest, pay off debt, or maybe invest.
Here are 3 simple ways to improve your cash flow and make sure you are making moves to a better financial future.
1. Have a positive cash flow.
The very first thing you have to do is to make sure you have more coming into your account then you have to send out to bills. If you have a negative cash flow, that needs to be immediately fixed. Track those expenses, get yourself on a budget, cut your expenses, increase your income, do whatever needs to be done to make sure you aren’t spending more than you make.
The very first thing to do is to determine if you have an income problem or a spending problem. If it’s a spending problem, that’s an easy fix. Find quick ways to cut some spending to immediately help your cash flow move to positive. If it’s an income problem, that’s also a fairly easy fix. Find yourself a side hustle, or evaluate if you are fairly being compensated.
Either way, you need to evaluate and make sure you have a positive cash flow, otherwise you can’t move to improving your cash flow.
2. Evaluate your cash flow.
Once you have a positive cash flow, it’s important to evaluate the money coming into your account and the money that leaves it. The money that you have coming in, do you feel fairly compensated for your work? Do you think you need to increase your income to reach your goals?
The big question is evaluating the money you have leaving your account. What happens to money when it enters your account? Does it sit in your checking account? Does it immediately go to bills? Is it working towards a specific goal you have?
Once you evaluate your cash flow, all the money coming in and out of your accounts, you will be ready to make big changes to improve your financial future. Start thinking about the things you want to change with the money coming in and out of your account.
3. Zero out your cash flow.
Once you know where you currently stand with your cash flow, it’s time to zero it out. Like I have said before, this doesn’t mean spend every single dollar you make. This means that you need to give every dollar a job, the easiest way is to zero based budget. That’s why you should have a zero cash flow by the end of your budgeting period.
If you still have a positive cash flow at the end of the month, what is that money doing for you? You need to put your money to work. In order to reach your financial goals, you need to make sure you are using your money to get there.
It’s not a bad thing to let money sit there, but the reality is, you’re not improving your financial future by letting it sit. If you are letting money sit in your account, what’s the purpose for the money? If you have a purpose for that money, then absolutely let it sit. Is it a buffer? Is it so you can get to the point of being a month(s) ahead because your income fluctuates? Are you cash flowing an expense you know is coming?
The point is, you need to make sure your money has purpose and isn’t just sitting around not working for you. By zeroing out your budget and cash flow, you can make sure you are reaching your goals.
Remember, your money needs to work for you.
If you don’t put your money to work, you’re not going to reach any kind of goals that you have for yourself. You need to make sure that you clearly know your goals and know how to make your money help you in reaching those goals. By making sure that you have given a job to every dollar that enters your account, you can ensure that you reach your goals. How have you made sure that you reach your money goals?