By setting goals and assessing the flow of your money you can establish a cash flow plan
Even when we know how to save in theory, putting our knowledge into an actionable plan can be a challenge. Start new habits by following these six quick tips.
1. Set ambitious, but realistic goals
The first step to building better cash flow is to visualise where you want to be financially. The best way to do that is to write down your financial goals.
Make sure you don't limit your goals to what you think is achievable now. If you are really serious about changing the way you manage money, write down 'stretch goals' – targets that will demand continuous improvements in your performance but are not impossible to achieve – and put a time limit on them to help you track progress.
When setting your goals there are a number of factors you should consider:
- your age
- your health
- upcoming financial commitments
- short-term obligations
- existing debts and assets
- likely income.
2. Pay yourself first
One of the most difficult (but important) aspects of cash flow management is having the discipline to pay yourself a set amount to cover your day-to-day living expenses. By using a central cash hub, such as a Macquarie Cash Management Account (CMA), you can arrange to have your living expenses transferred into a transactional account and bills automatically paid. Meanwhile, the remainder of your salary accumulates in the cash hub, so the money you have worked hard for starts working hard for you by earning interest
3. Review the flow of your money
It helps to think like a business. They measure the money coming in against what is spent, as well as looking at what they own versus what they owe. They use this information to make financial decisions such as investment, borrowing, cost-cutting and expenditure.
It's important to understand how these measures connect. When you can see the connection between money in (income) and money out (expenses), as well as what you own (assets) and what you owe (liabilities) it reinforces the importance of building assets that may help you generate income, and reducing the liabilities that create expense.