Why Your Cash Flow Should Matter to You

Cash Flow
Lending companies have been sprouting everywhere luring salaried individuals to avail of their short-term loans. They call it the “salary loan”.  Interests paid to avail of these loans are so high we would not think anyone with sense will take them. But the reality is a lot of people accept these exorbitant fees by taking out loans when they run out of money. It is unfortunate that a considerable part of their income will go to paying off interests instead of going to more valuable things. This situation would never happen to people who handle money wisely. Lending companies earn from people who are ignorant when it comes to their own finances.

Income Minus Expenses Equals Cash Flow
Analysis of our current cash flow on a month-to-month basis should give us a pretty good idea if we are doing okay. Cash flow is a term we use to denote the difference between the amount of money we earn versus the amount of money we spend in a month. We usually call the amount we earn our income while the amount we spend is our expenses. We may think of cash flow as a description of how our money flows. Money will flow IN to us through the income we get from our salary or our business. Money will also flow OUT from us through our expenses for our needs and wants. Therefore, if our cash flow is positive it means more money is coming in than going out which also means we save money at the end of the month. While if our cash flow is negative, we spend more than we earn which is really bad for us because then we would need to find a way to bridge the gap. Most people do bridge this gap with salary loans with interest rates as high as 10% in a month.

How to Improve Cash Flow
Being aware of our monthly cash flow will definitely help us with our financial situation.  Accounting not only for your total expenses but also the type of spending we make can be done by taking note of each and every item we spend money on. This way, we will see which type of expense gets the big chunk of our money and determine if we can do something to reduce it. Obviously, we should always strive to have a positive cash flow by making sure we spend less than what we earn. There are two ways to do this. Either we reduce how much we spend or we strive to increase how much we earn. I would say that spending reduction is much faster to do since it can easily be controlled. As opposed to increasing our income which may also be achieved but it can take more time to accomplish.

Start Keeping Records Now
A situation where our expenses are just equal the amount of money we earn will leave us with nothing in the end. If our goal is financial freedom, this scenario will not bring that. Less so will the situation where expenses are even greater than our income. This setting will suck everything we got until we are heavily in debt. But in order to turn this around so that we earn more than we spend, we need to know how to live within our means. We can never attain this if we don’t even know our current cash flow to begin with. So we better start our record keeping now of all our spending and earnings. Money flowing in and out should be noted every time all the time.