`

CashFlow Modelling is the financial lifeline of personal and business success.

As an Adviser who’s navigated through so many client financial challenges, as well as help people develop their cash flow and retirement plan since 2011, I understand how critical effective cash flow management can be for just about everyone in their working years.

This comprehensive guide will provide you with the valuable lessons I’ve learnt. It summarises them into practical, actionable strategies so you can take control of your financial health and create a more stable financial future.

Understanding Cash Flow: The Basics

Cash flow is more than just a financial buzzword – it's the lifeblood of your financial well-being.

In its simplest form, cash flow represents the movement of money in and out of your personal or business accounts. My own financial journey taught me that understanding cash flow is crucial to achieving financial stability and reaching long-term financial goals.

Once you start using our planning software Planolitix, you’ll start to grasp how this can outperform just about any other strategy for maximising retirement savings.

Many people mistakenly believe that cash flow is only about how much money you earn. However, it's equally about how you manage, spend, and save that money. Effective cash flow management involves creating a strategic approach to your finances, understanding your income streams, and controlling your expenses with different bank accounts that serve different purposes.

The first step in managing cash flow is developing a comprehensive understanding of your current financial situation. This means creating a detailed breakdown of all income sources and tracking every single expense. I learned this lesson the hard way – after years of financial uncertainty, I realised that true financial control begins with complete transparency.

Cash flow management is not about restricting your spending but about making informed financial decisions. It's about creating a balance that allows you to meet your current needs while also planning for future financial goals.

Creating a Comprehensive Budget

Budgeting is the cornerstone of effective cash flow management. When I first started my financial journey, I made the mistake of creating overly complicated budgets that were impossible to maintain. And most people I come across who have created a budget, spend more than what’s in their budget.

The key is to create a simple, realistic budget that you can actually stick to.

The 50/30/20 rule has been a game-changer in my financial planning. This approach suggests allocating 50% of your income to essential needs, 30% to wants, and 20% to savings and debt repayment. However, this is not a one-size-fits-all solution. The percentages can be adjusted based on your individual financial circumstances.

Technology has made budgeting easier than ever. Numerous apps and tools can help you track expenses, categorize spending, and provide insights into your financial habits. I recommend using a budgeting app that can connect directly to your long term retirement plan. That way you can see how spending adjustments over time as life changes, alter your retirement savings outcome.

Regular budget reviews are crucial. See here how we can help. Set aside time monthly to review your budget, identify areas of overspending, and make necessary adjustments. This proactive approach allows you to stay on top of your financial situation and make informed decisions.

Strategies for Increasing Income Streams

Diversifying income streams is a powerful strategy for improving cash flow. In today's gig economy, there are numerous opportunities to generate additional income. My personal experience taught me that multiple income streams provide financial security and flexibility. That’s why we broker Kiwisaver, Investments, Life, Income and Health insurances. Aside from being holistically appropriate for our clients, it creates a hedged income for Bridge Financial as we are paid directly by the provider.

Consider exploring side hustles that align with your skills and interests. This could include freelancing, consulting, online tutoring, or creating digital products. The key is to find opportunities that don't require significant upfront investment and can be managed alongside your primary income source.

Passive income streams can be particularly effective in improving cash flow. This might include rental income, dividend-paying investments, or creating digital products that continue to generate revenue after initial creation. While these often require initial effort and investment, they can provide long-term financial benefits.

Investing in your skills and education can also lead to increased income potential. Consider taking courses, obtaining certifications, or developing skills that can lead to promotions or higher-paying job opportunities.

Expense Management and Reduction Techniques

Effective expense management is crucial for improving cash flow. This doesn't mean living a life of extreme frugality, but rather making smart, intentional spending decisions. I learned to differentiate between necessary expenses and discretionary spending.

Conduct a thorough audit of your current expenses. Look for subscriptions you no longer use, negotiate better rates for services like internet and phone plans, and find areas where you can cut back without significantly impacting your quality of life. Small savings can add up to significant amounts over time.

Implement the 24-hour rule for discretionary purchases. Before making any non-essential purchase, wait 24 hours to determine if it's truly necessary. This simple strategy can help reduce impulse spending and improve overall financial discipline.

Consider using cash or a prepaid card for discretionary spending. This can help you stick to a predetermined budget and avoid overspending. The physical act of spending cash can make you more conscious of your spending habits.

Building an Emergency Fund

An emergency fund is your financial safety net, providing peace of mind and financial stability. My personal experience has shown that having an emergency fund can be the difference between financial stress and financial resilience. Particularly when events like Covid-19 or the GFC roll around every few years.

Aim to build an emergency fund that covers 3-6 months of living expenses. Start small if necessary – even saving $50 or $100 per month can build a significant buffer over time. Automate your savings to make the process easier and more consistent.

Keep your emergency fund in a easily accessible account, but separate from your primary checking account. This prevents you from using the funds for non-emergency expenses while ensuring you can access the money quickly if needed.

Treat your emergency fund contribution as a non-negotiable expense. Prioritise building this fund before allocating money to discretionary spending or additional investments.

Conclusion

Effective cash flow management is a journey, not a destination. By implementing these strategies, you can take control of your financial future, reduce financial stress, and create a more stable and prosperous financial life.

FAQs

Q: How quickly can I improve my cash flow?

A: With consistent effort, you can see improvements in 3-6 months.

Q: What's the most important cash flow strategy?

A: Creating and sticking to a realistic budget is the foundation of good cash flow management.

Q: How much should I save in an emergency fund?

A: Aim for 3-6 months of living expenses.

Q: Can I manage cash flow on a low income?

A: Yes, the principles remain the same – track expenses, create a budget, and look for ways to increase income.

Q: How often should I review my budget?

A: Monthly reviews are recommended, with a comprehensive annual review.

Hope this helps!

Chris George | Financial Adviser

Want more…?

👉This video explains how to WIN the financial game!📝

👉This video explains how a couple could accumulate an extra $1,200,000 in Kiwisaver over the next 25 years, without increasing their contributions or risk 📈

👉This video explains how to stop your income and life insurance premiums go up💡

👉Let's sit down and figure out how to map out a future you can look forward to…Click here or below to schedule a strategy call.

Note: Any information provided is for general and educational informational purposes only and is not personalised advice. Your circumstances are unique and there’s no templated road to a cushy retirement! For personalised advice, please book a Strategy Call.