Cash flow is the most important element of our personal finance. Cash is king and there is no better way to gain and maintain control over your personal finance than by mastering your cash flow. In fact, it is difficult to expand your wealth and grow your personal finances to the next level without a healthy cash flow.
Cash flow is all the money coming in (income, profits, etc., also known as positive cash flow) and out of (expenses, loan repayments, and other negative cash flow) of your personal finances. Healthy cash flow is naturally one that is bigger on the positive side. How can you boost your cash flow to a healthy level? Here are some top tips to keep in mind.
Work on Your Negative Cash Flow
Expenses are much easier to control than income. You can’t always boost your income at will or in a short period of time, but you can make the decision to remove unnecessary expenses in a heartbeat. That is why working on your negative cash flow first is the way to go.
There are two elements of your negative cash flow and they are fixed expenses and variable expenses. Fixed expenses are relatively easy to figure out. Every expense you pay on a regular basis – usually, on a monthly or bi-weekly basis – can be classified as a fixed expense. Even when the amount fluctuates from month to month, fixed expenses are easy to predict.
Variable expenses, on the other hand, are the expenses whose amounts change from month to month. The money you spend on clothing, personal care, food, and transportation is money allocated to variable expenses.
Between the two types of expenses, variable expenses are the ones you need to focus on. Eliminate all unnecessary expenses and you can reduce your entire negative cash flow substantially. You can also choose to allocate the money you save towards debt repayment, so you are reducing your fixed expenses and negative cash flow even further.
Invest in Cash Flow
Not all investment opportunities are created equal. If you are just getting started with building your investment portfolio, the best investments to make are revenue-generating investments. By organising your financial picture and focussing on cash flow planning you can strengthen your cash flow, boost your income, and eventually increase your ability to invest in the future by opting for this type of investment.
There is no shortage of options to choose from, too. You can invest in active businesses or start your own to gain more control over your additional sources of income. You can also enter the financial market for cash flow purposes. Instead of investing in long-term stocks, you can do more day trades and utilize instruments such as forex to earn more revenue.
Even the real estate market offers cash flow-boosting opportunities. With the demand for rental properties going up, there is no better time to invest in real estate than today. You can also use Real Estate Investment Trust or REIT to invest in real estate with less money and generate more revenue in return. REIT is basically real estate crowdfunding that combines the investment power of multiple investors to multiply the potential return.
Focus on the Long-Term Goals
Most of the tips we have covered so far are aimed at achieving short-term cash flow goals. That said, you should never lose sight of the bigger picture, i.e. the long-term goals you have in mind. There are certain things you still need to do to have a healthy cash flow in the long run.
For starters, reducing the amount of money you allocate for boosting your skills or for taking a vacation can greatly reduce your work performance. This could have a serious effect on your career, preventing you from getting that promotion you’ve been after for months.
The same can be said for investing in high-risk, high-return instruments. While the high-return potential can bring superb short-term benefits, having too many high-risk investments in your portfolio can seriously hurt your long-term progress.
Maintaining healthy cash flow is all about balance. You want your negative cash flow to remain lower than the positive side. You also want to grow your positive cash flow with additional sources of income and a bigger income from existing sources. In trying to do so, however, you need to make sure that every part of your personal cash flow serves the right purpose, both for achieving your short-term goals and the bigger, long-term objectives of gaining financial freedom. Remember one thing: even a small increase in pay can translate to a big bump on your account balance over time.