“Your account is credited with XXX amount” This is the message we all wait for towards the end of the month, don’t we? A salaried person is dependent on his monthly wages to run his day-to-day activities. We budget our lives depending on the salary we receive every month. However, this should not be the case, if you wisely plan your cash inflows and outflows.
And as wisely said, “ Don’t let money run your life, let money help you run your life better.”
– John Rampton
But for this to happen, you will need to learn cash management, an art that once mastered will take you miles! So, what are the golden rules of this cash management, let’s understand them better!
1) Budgeting- The first step towards managing your cash flow is budgeting i.e. a cash flow plan. You should consider your current financial position and then categorize all your expenses in different headers for e.g. entertainment, education, and others. This will help you to reprioritise your expenditure. A budget often serves as a road map and is vital for healthy cash flow management.
2) Check the flow of your money- Credit versus debit. It is a measurement of what you own versus what is owed. This measurement will help you to develop a connection between your income & expense emphasizing the need of building assets and reducing liabilities.
3) Set Ambitious but realistic goals- The most important thing that you should do while planning your cash flow is to set goals. The best way to set a goal is to write down where you want to be. Always set goals that demand continuous performance. Keep a timely check on your progress. You should consider the following factors before you set a goal.
• Short term obligations
• Long term obligations
• Any other financial commitments.
Now while setting these goals, one thing you have to make sure is you set realistic goals considering the factors above along with a time frame.
As said, once you have committed to a list of goals, you will have a stronger motivation to change your money habits.
4) Manage your surplus- Good cash flow management means that you are left with surplus money even before your next salary is credited. You should not only manage the cash flow but also make sure that you are investing this surplus somewhere. Make use of your money, don’t forget extra income is like a cherry on the cake which we all love.
5) Structure your monthly expenses around the payday- You should structure the expenses which are fixed in nature such as rent, maid, monthly groceries on the second day after you receive your pay. This will help you to plan with the money that can be either saved, invested, or spent on luxury.
6) Track your expenses- A penny saved is a penny earned. Hence you need to keep a track of your expenses. Sometimes small purchases add up quickly making it a big amount. There are chances that an unknown emergency occurs which eat up a large chunk of your expenses.
You often end up spending more than your budget if you don’t track and note the progress/red flags on a timely basis. Always categorise your expenses and analyse where it is difficult to control the expenditure. You can also track expenses by installing any application on your phone.
7) Commitment to new expenses- You should not commit to any new and unnecessary expenses even if your salary qualifies you for the same. Some people are found to be taking unnecessary loans without there being an actual need. You justify the loan approval because of your salary. A financial institution only takes your salary and credit report into consideration. Whether you can pay it or not is dependent on you based on your budget. Hence you should not sign up for any monthly expense unless required.
8) Limit the credit card use- We easily switch to a credit card when we run out of money. It is necessary to understand that do we really need credit cards and pay interests attached to the service? Evaluate the need of buying things that can wait for the next pay cycle. One should make use of a credit card only when necessary. This will help you save from unnecessary expenses.
9) It’s a process- Just like Rome was not built in a day, and good things do come with a price attached to it, managing your cash flow is a process and it will slowly come on track. Develop healthy financial habits. These habits will help you manage your cash flow better.
10) Make the most out of your money- Try to use your money wisely. You can figure alternatives like discounts, coupons, sales and offers that should be utilised while making a purchase. Maximum return on your money should be your motto.
11) Take Advice- If you are not able to manage your cash flow and investments due to any reason it is always suggested that you consult a financial advisor. A financial advisor will help understand your goals and strategize a good financial plan. Consulting an expert will help you achieve your financial goals easily.
Remember, managing your cash flow for a salaried person is very important. You should develop healthy financial habits for the same. Do not push yourself even if the goals are not achieved in the first few months. It’s a practice and it takes a lot of time.
Consult an advisor if you are stuck and not able to figure things out. Better cash flow management will not only help you save but also contribute to a good retirement plan. As said, “Making more will not solve your problem if cash flow management is your problem”,- Robert Kiyosaki.
Last but not the least, set short-term goals, take small steps and monitor your progress to manage your salary easily.
(The author is founder at Fintoo; views expressed are personal)
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