Anyone in business knows that cash is king. You need to know exactly how much is coming in and going out – and when.
When it comes to personal cashflow however the level of planning is generally not the same.
Do you know how much you are spending every year? Have you ever sat down and done a budget? Did you look at it again or did it get tucked away in the drawer, never to be seen again. Do you find that as your income increases, the spending increases just as quickly?
To take control of your personal cashflow follow these steps:
1) Understand exactly what is coming in and going out. Look at your statements for the last 12 months to work out your net income and your total spending. It is amazing how often the total spending is larger than we think it is.
2) Put together a budget. What are you aiming to spend in the next 12 months? When deciding how to cut your expenses it is useful to convert it to annual cost. eg. a cup of coffee at work each day seems like loose change but if you buy a $4 coffee every day you are at work, it will end up costing you $960 for the year. Find a few more of these and you are well on the way to making some serious savings. It also helps if you think about it in terms of how much better off you will be over a longer period of time, say 5 or 10 years.
3) Have an implementation plan. It’s no good saying you are going to save an extra $4,000 but then not doing anything to change your behaviour and make sure it happens. Don’t wait to see how much you have left over each month. Set up automatic payments as soon as you are paid. This could be a direct debit to a separate bank account or increasing your mortgage payments.
4) Review and revisit. Make sure you check in regularly to stay on track and adjust as required. Tell someone what you are trying to achieve – couples should work on it together, otherwise this could be a family member or friend.
5) Finally, make sure you celebrate as you reach your goals and milestones. Take the time to enjoy the achievement before moving onto the next one.