More Tips to Manage Your Cash Flow

In part one of this series we told you how to start getting control of your cash flow by understanding where all your money goes.

In this article we’ll tell you how to get an even deeper understanding of your finances and really keep them on target.

(continued from Part 1) Step Four – Find the Leakage

We all have leakage. These are areas where your income seems to just disappear. It goes into areas where we spend too much or in some case are like a black hole sucking everything in.

While we all want to increase our income, the quickest way to improve your financial position is to reduce your expenses.

The task now is to identify three areas where you can quickly and easily make some savings.

For example, by increasing the excess on your home insurance you will reduce your yearly premium.

You can do this with your car insurance as well.

Have a look at how many claims (if any) you’ve made in the past five years, and work out what level of excess you’d be comfortable with.

You may also get savings if you package your insurances together.

Power, petrol and phones are also areas where you can save money. Do you really need the latest phone on the premium plan?

I’m sure you get the idea, and there are plenty of websites that will tell you how to make even more weekly savings.

Remember, once you have found a few areas to save money, then redirect that money into an area that will give you the greatest benefit such as paying down your mortgage. Don’t just spend it on something else.

This is where having clearly set goals will help you as we discussed in part one.

Bonus Tip: If you get a pay rise or a lump sum payment, pretend it never happened and put it all into your home loan offset account.

Step Five – Give Yourself a Pay Rise and Do Some Good With it

So you’ve completed your cash flow analysis/budget and identified several areas where you can save money.

Let’s say you’ve found an extra $2,000 a year, which is the equivalent of a $2,500-$3,000 a year pay rise as you have to pay tax on anything you earn.

This extra money should be directed to your home loan offset account or to clear credit card debts. Generally you want to pay down the debts with the highest interest charges first, as that will help you save even more money each month.

The key is to do some good with those extra funds. That is; do something that improves your overall financial position.

Step Six – More Ways to Reduce Spending and Create Good Money Habits

Consider the following and choose one or two that you can do quickly and easily.

  • Make sure you pay off your credit card in full each month
  • If you have a credit card get some rewards for it that you can use to purchase other things you need
  • Check out using an offset account
  • Review your mobile phone plan
  • Don’t be afraid to barter on everything
  • Shop for the best health insurance deal
  • Consider having your life cover through your super fund
  • Avoid buying basic items such as milk and bread at service stations or deli’s
  • Eat before you shop
  • Book flights, holidays and accommodation in advance
  • If you need cash, only withdraw it once a week not daily
  • Beware of spending creep
  • Learn to live within your income ie: Don’t borrow or hit the credit cards for things you want

Step Seven – Review, Rinse and Repeat

Once you’ve done your cash flow analysis/budget and made a plan to save and improve your finances, then repeat the process every three months.

Reassess your goals and see how your financial position is improving

This will help you:

  • Stay focussed
  • Understand where your income is being spent
  • Avoid spending creep
  • Indentify more areas for saving

Best of all when you see your financial bottom line improving, that is you have more money or greater asset value, it will motivate you to keep going.

Once you’ve done this for a year you will be pleasantly surprised at how much your financial position has improved.

PS: Remember to check out our cash flow analysis/budget planner to help you get control of your money or contact PEB Financial Planning to inquire about having a mentor do the work for you.

*This article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.