Are you living paycheck to paycheck? If so, then you may need to focus on cash flow. Yes, we know that sounds like a fancy business term or something you need to have a CPA take care of. But it is something you can handle. (We promise).
Here are some cash flow management tips you can start using right away.
What is cash flow management?
Cash flow management is knowing what money comes in and what needs to go out. And, most importantly, it’s knowing when both of those things happen. You may think of it as a budget tied to your calendar. However, if you do not like the word “budget,” you can think of it in any way that makes sense to you.
Steps for cash flow management
Because timing plays an important role in your cash flow plan, start with a calendar in a daily view. You can use a paper calendar, your computer, or your phone calendar. Write down when all your sources pay you (your paycheck goes here) — these are your inflows. Note the typical amount and add it up for the month on a separate sheet or at the bottom of the calendar. You’ll need this number later.
Next, add your monthly bill amounts and the dates they are due — these are your outflows. Look at your non-monthly bills, too. These include your car insurance (billed every six months) or a membership (billed annually). Add up your monthly costs and write down the total on the same sheet or calendar. Set a monthly budget to save for these bills so they don’t surprise you when they are due.
If the total outflows are more than the total inflows, that will be the first thing you need to address. But if your outflows are equal to or less than your inflows, you can move on to the next step. This is to see how well your inflows and outflows line up by date.
Based on when you receive your paycheck and when things are due, you can see which paycheck or other inflow you need to use to cover each outflow, or work on getting other inflow. Set a monthly budget to save for these bills so they don’t cause hardship when they are due. This will help envision when you usually spend too much discretionary income and when you are a little more flush with cash. It will also help you see which paychecks you can use to add to your savings.
What if things do not line up?
If more outflows come in each month, you will need to see what you can move around. And if you’ve been living with these intermittent shortfalls, you now understand why money seems so stressful sometimes. Here are two options to resolve these issues:
The first option is to change your due dates. Some you cannot change. However, your utility company or lender may allow you to move your due dates to better fit your cash flow situation. Just let the company know the situation and see if they can work with you. Making a one-time or recurring change to your due dates can make things easier on both sides so you are up to date with your payments and not paying late fees.
The second option is to consider getting a temporary increase in your income to get back on track. Take some extra shifts to build up a cushion that lets you get ahead, so your inflow and outflow schedules match better.
What to do with extra funds
The goal for all of us is to have more inflows than outflows each month. But what do you do with that extra money? Start by saving that monthly amount for your annual and semi-annual bills. You can keep that in your checking account, savings account, or set up a separate savings account to help you track where you are meeting those expenses. After that, focus on building an “emergency fund” to cover emergency expenses and a “rainy day fund” for expenses that aren’t typical but also aren’t an emergency. Once you’ve funded those accounts, then you can look at long-term savings and paying extra on debt.
You’ve created a cash flow plan, and you are totally on top of your finances now. Congratulations!