Cash flow management. It sounds like a complicated business term, doesn’t it?
Something only accountants could handle with complicated spreadsheets and projections? Well this isn’t the case. As with everything that is good in life it’s simple when you know how and it is one of the first steps to reducing the weight of financial stress off your back.
IT’S ALL IN THE TIMING
One aspect of controlling your cash flow involves keeping on top of the TIMING of when your money goes in and out. The timing between when you are paid and a bill is due, or for a business’s cash flow management, its ability to pay for expenses when you are waiting yourself to be paid by customers.
NAILING THE ART OF CASH FLOW MANAGEMENT
For your personal cash flow, organise multiple bank accounts. It’s a simple approach but very effective, however the only way for this to work consistently is when you get paid, move the required amount of money to each of those accounts straight away!
That’s right, move the required amount of money to each of those accounts straight away!
- ACCOUNT 1- EVERYDAY ACCOUNT: money is paid into this account and the money for the other three accounts is moved out of here. What is left here is your cash for the week or until next pay day.
- ACCOUNT 2- DIRECT DEPOSITS AND BILLS: add up your bills that are due monthly, and transfer money from each pay to go to this account.
- ACCOUNT 3- LONG-TERM ACCOUNT: Think of those longer-term bills – servicing the car twice a year and the car registration. Add them up and divide by 12 months – this is the amount to transfer each month. Make sure all bills are covered between accounts 2 and 3.
- ACCOUNT 4 – FUTURE GOALS / EMERGENCY FUND: Now that you’ve paid your regular bills (accounts 2 and 3) and budgeted for everyday items (fuel, food, leisure activities – account 1), you can work out how much is left over. It’s important to put money aside regularly, even if it’s only a small amount. Whether it’s for your future goals, emergency fund or safety net, choose an amount and move it into account 4 every single pay day.
By splitting up the amounts you have negated the TIMING issue. You have placed bills and savings money where it needs to go so when it is due there is no cash flow issue.
Future you is already thanking you!