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We're working on reviewing our budget and cash flow tonight for our family's financial meeting. With our new house expenses, we're adjusting everything to make our finances run smoothly.
Having a positive cash flow means our net worth will grow over time while having a negative cash flow will eventually drain us.
Why Manage Your Cash Flow
The first step is to get a financial snapshot of all of your accounts. It may take a little bit of time if you haven't done this before, but I want to you to know that it's worth the effort.
Seeing our cash flow and net worth gives us an idea of where we need to adjust. after getting idea of where we were starting we went ahead on creating a plan to improve our family's finances.
While cutting costs is a great way to increase your cash flow (more on that later), it's only one part of the equation. Frugality has its own limitations and that's why you also have consider the other side of the coin: building your income stream(s).
Increase Your income
While this is a harder step, it can also be the most rewarding. The idea is to look for ways within your life that you can build or expand your income streams.
While some people will be drawn to entrepreneurship, others may want to stay within the framework of their office position.
- Present your case for a raise or bonus: Too many people just go in and request a raise and are rejected. Determine and track your worth to your company in concrete numbers. Keep copies of commendation from managers, clients, and coworkers. Practice going over your presentation to make it persuasive to your manager and overcome any objections that may present.
- Start a side business or income stream: Assess one service that you can offer with your current skill set and become a freelancer. For example, offer your accounting skills to local small businesses with bookkeeping. If you’re looking to get the word out, considering some low cost ways instead of spending a ton of money on a side project.
- Sell your unused and rarely used items: Clean out your place and build a cushion.
The key with building income is having a few streams, even if they are small, to help you.
Make sure though your income stream doesn't overwhelm you.
If necessary, simplify your finances, focus on 2 income streams and slowly build from there.
Some goals for the additional income can be:
- Saving for an emergency fund
- Pay off your high interest debt
- Give more to a charity/cause you support
- Help family & friends
- Invest in a Roth IRA
Just make sure how you're spending your money is a reflection of your values.
Optimizing Your Expenses
Going back to the financial snapshot you took, try examining your expenses and ask yourself if this is money well spent.
If you have cable for example, do you use it enough to justify the price? Cut expenses that you don't really need and don't want.
If you do use a service like cable, have you called the company and tried to get a better deal?
If you’re looking at some ideas on where to start, check out these:
- Compare cable, phone, and Internet deals. Call your cable provider to see if they can give you a better rate; you may be surprised. We’ve called our company to downgrade our service after the promotion and they continue it for another year. It never hurts to ask.
- Analyze your cell phone service. Can you switch plans to get a better deal? Downgrading to less minutes can work only if you know you won't go over the new plan's minutes.
- Examine your land line bill. Be honest with yourself and see if keeping a land-line is worth it. Personally, we supplemented our home line with a Skype account. It costs around $6/month and it provides the same services other home lines offer plus we can chat with friends in Guam for free since they're also on Skype.
- Compare auto insurance rates. This can definitely save you some money if you're willing to compare. Just make sure you receive a policy that can comfortably cover your family's situation. Check to see if you can raise your deductible up slightly, which usually lowers your auto insurance premiums.
Simplifying your life can remove some unnecessary expenses and free up money for you to spend what you love.
Which Budget Software Can Help?
Besides using personal finance spreadsheets, there are numerous tools on the web and for your desktop that you can use to get your finances in order as a kind of budget planner.
- Mint: I use this often to keep track of my spending habits. Since Intuit has bought Mint, I believe this will be even bigger in 2010.
- Quicken: The most popular money management software has a lot of capabilities with budgets, investing, real estate, and more. Examine the features of the different editions before you buy to make sure you grab the best fit for you.
- Pocket Smith: This is a really useful budgeting calendar and forecasting web tool.
- You Need a Budget: While this is not free ($59.95 after trial), some personal finance bloggers find YNAB more than worth it.
- BudgetPulse: A strength of BudgetPulse is the visualization of expenses and income.
Don't get hung up on the method, just implement what works best for you and your finances.
How do you manage your cash flow? What has been easy for your to implement? What has been hard?
Photo Credit: Jayson Ignacio