Manage Your Finances Through Cashflow Management

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In order to manage your finances, you need to budget. Making a budget means you are trying to manage your expenses according to your income. Therefore, the first step of money management is to make a budget. You need to make your budget every month, and you need to strictly stay within your budget. Staying within your budget means you are not spending more money on any category that you have actually set a budget for. Let’s say you have set up a $100 budget for entertainment, if you spend all money before your next payment cycle, you should not spend extra money on entertainment for the rest of the month. Making a budget will help you save money.

In order to budget, you need cash flow management skills Cash flow management means tracking your expenses and income. While no one expects you to become a maths genius in order to start building your finances, you sure need some mathematical skills to calculate your income and expenses. If you are not good at math how you can know where you should cut your spending and how much spending you need to cut? You need to be good at managing money to build your wealth.

What is Cashflow Management?

Cash flow management is a method of managing the cash flow of a business. Cash flow means the money that comes in (income) and the money that goes out (expenses). Managing cash flow can be done in numerous ways, however, the most common method is by keeping an eye on the money coming into a business through various sources like sales, investments, etc. and controlling the money going out in the form of various expenses such as capital investments, salaries, operational, etc.

The primary goal of cash flow management is to have enough money flowing into a business so that the business can not only cover all of its expenses but also have surplus money that can be used in the future and also shared as profits among investors.

The concept of cash flow management is also implemented in personal finance. Cash flow management in personal finance means making a record of income and controlling expenses so that you have surplus money that you can save for your emergencies and also invest in the market.

The purpose of cash flow management is to improve your finance so that you will have more secure finances in the future. Cash flow management skills will make you financially free.

How to Bring Cash Flow

What should you look for in your investment? When it comes to making an investment, what should you actually look into?

Well, you need to look for cash flow. In other words, when you invest in the market, your investment should bring you cash. When you invest, the value of your asset will gradually grow, however, this is not all you should look for in your investment, your investment should also give you a return regularly. For example, if you invested in the stock market, your stocks should provide you dividends regularly. You bought stocks for $100 and it because $120, this is not the only thing you should look forward to, your $100 should also bring you a 10 percent return or a $10 return. Likewise, if you invested in real estate, your real estate should not only gain value but also bring you monthly income in rental fees. If you invested in a business, your business should bring you cash.

If your investment does not bring you cash flow, there is no point in investment.

How Not to Run Out of Money

You will never run out of money in three conditions:

You build emergency funds: When you have emergency funds, you will have money when you need the most. How much money should you have in your investment funds depend on your income level and saving habits, but I would say 4 months of monthly expenses would be fine. 

Investment: If you have invested, you can sell your equity and get cash whenever you want. The investment will also build your regular income through return on investment.

Liquid assets: If you have liquid assets such as stocks, gold, or even cash, you will never run out of cash as you can convert your liquid assets into cash whenever you want.

Apart from these three methods, you will also never run out of money if you have an income source. When you have a job, self-employment, or a business, you will always have cash at your hand.

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Comments

keep creating cash flow is the key! holding assets can bring those for you!

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1 year ago

I am a person who can't avoid to spend to much and this article helps a lot. It is really important have investments and make and emergency fund so that whenever you need something you can use it. Handling money is really for those who use it wisely, but it's not to late to be wise. You can learn from article like this if you don't want to settle for your detrimental habits like spending too much.

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1 year ago