‘Cash flow’ is such a business term. You hear about businesses going under because of ‘a cash flow problem’, but you don’t really think about your friends or family struggling with it. And why not? Cash flow is just a catchy name for the balance between incomes and expenses that make up one’s finances. For businesses and individuals, this all happens in a bank account.
The equation is intuitive, really: Spend more than you earn, and you’ll have a negative cash flow. Conversely, earn more than you spend, and enjoy a positive cash flow. The latter is where you want to be. If that’s really all there is to it, why do so many of us struggle making ends meet month after month? It all comes down to micro-decisions we make every single day, sometimes passively.
Common cash flow problems
When a person earning an average or higher income finds him or herself strapped for cash at the end of each month, the likely culprit is either sub-optimal fixed expenses, irresponsible discretionary expenses, or a combination of both. It takes some close examining and a dose of honesty to get to the bottom of the problem, but it’s essential in order to remedy cash flow. As always when it comes to money, time is of utmost importance – so stop avoiding the elephant in your bank account.
1. Fix your fixed expenses
Start by taking a long, hard look at your fixed monthly expenses. These includes taxes, miscellaneous bills such as rent or car insurance, and essentials such as groceries and medicine. Many who undergo a process to revamp their expenses skip right over evaluating their fixed expenses, assuming they won’t budge. However, that’s a rookie mistake. Often, fixed expenses seem so rigid because we haven’t taken the time to uncover inefficiencies. It’s time to stop avoiding it.
Consider every item on your fixed expenses list separately, to find opportunities to save money. Your mobile carrier may be offering a promotion, you may have more than one unused tax break, and you’re almost certain to save on car insurance if you just shop around. If you’re feeling particularly bold, get on the phone with your gym and see if you can work out a deal whereby you still pretend to come regularly, but they charge you less for it.
2. Exercise discretion
When it comes to discretionary expenses, you have a choice – which actually makes things harder. When you can control where and what you buy, the responsibility for your choices – and the state of your cash flow – rests squarely on your shoulders. Decisions, decisions…
Just as you did with your fixed expenses, take a look at your list of discretionary expenses and begin breaking it down, piece by piece. Ask yourself: Do you really need Netflix, Hulu and HBOGO subscriptions? Can you absolutely not live without a frapuccino every afternoon? And while, yes, eating organic is important, isn’t there a farmers market you could visit to get your organic fare for way less than Whole Foods sells it? If your expenses don’t reflect your honest answers to these questions, that means your negative cash flow is, unsurprisingly, your own fault.
Grab the reins
One of the main things we advocate here at Change, is that small measures count, too. By consistently making a series of seemingly small choices, you’ll end up saving modest sums on a monthly basis. Over time, much likely automated savings, these incremental sums will add up – and it’ll happen much quicker than you think.
The benefits to maintaining a positive cash flow are infinite. You’ll notice your mood improves, your mind is freer to make plans for the future, and you’re better equipped to make responsible financial decisions that increase the likelihood of future success. All of that adds up to more savings, more security, and even greater options to live your life as you always dreamed.
Therefore, don’t think about this exercise as a buzzkill. You work hard for your money – it’s about time it did something for you, for a change.