Your personal cash flow is essential. Without understanding cash flow, you may find it hard to improve your financial status. But when you know how it works, you can use it as a guide to achieving your financial goals. When done right, you can even retire early or have the financial freedom that everybody wants. You must know how to improve personal cash flow.

What Is Personal Cash Flow?

In simple terms, a personal cash flow is a statement of your expenses and income. Here, you’ll know where your money is coming from and how you’re spending it. Knowing your cash flow can gauge your spending habits, prevent overspending, and increase savings to achieve your financial goals.

Why Is Personal Cash Flow Important?

When you know how to manage your cash flow, you can understand how much surplus is available. Surplus is the extra money that comes from your income after subtracting your expenses. You can use this surplus to invest or grow your assets or save and use it to achieve long, medium, and short-term goals. Thus, you can say that cash flow management is one of the most vital parts of retirement and financial planning.

You could say you have a good personal cash flow when your expenses are lower than your income. However, having higher expenses than your income may signify poor cash flow. As a result, instead of getting towards your financial goal, you may increase your debts and empty your savings.

What Factors Can Increase Personal Cash Flow?

How to improve personal cash flow

When you think that your personal cash flow is unhealthy or not getting a surplus, it may be time to take action. There are many factors to increase your cash flow, and some of them are as follows:

1. Find a Cheaper Place to Live

One of the most expensive fixed expenses is your rent. Thus, you should consider living in areas with cheaper rental fees. For instance, a rental not too near the city or public conveyances would be more affordable than those in the central business district.

You may also have to check if you’re renting a space you don’t maximize. This means you may be renting a fully-furnished apartment, but you don’t use the amenities because you’re only using your apartment to sleep. If this is the case, choosing an unfurnished space may be better and less expensive.

2. Reduce Variable and/or Living Expenses

You also need to check your living expenses. List down all the things you buy for a month or two. Check if these expenses are ‘needs’ or ‘wants.’ If it’s the latter, you may have to stop spending on them.

These unimportant expenditures may include gym classes, subscriptions, Starbucks coffee, and the like. All of these are non-essentials wherein you can find cheaper alternatives if you still want them. For instance, you can watch free fitness or gym exercises videos on YouTube instead of attending paid gym classes.

Cutting on your unnecessary costs lets you save some extra cash that you can use to offset other more important expenses.

3. Rental Income

If you can, you may want to invest in a rental property. You may take out loans to finance a property, then rent it out on Airbnb and other rental platforms. The rental fees you earn from this can help you pay for the loan, and you can use the surplus for growing your savings. 

4. Dividends and Interest

Or you can use your surplus from your rental income to buy stocks. This type of investment allows you to earn and grow your asset in the long run. Investors love stocks investment because they can turn it into a dividend-income living.

Some stocks have a 3% dividend yield. This means you can have $3,000 in dividends for one year if you’ve bought 1,000 shares from such.

Keep growing your investment portfolio by using the dividends you’ve earned to buy more stocks. Imagine how much you can earn from dividends alone if you keep this habit until retirement.

Or, if you want to sell the stocks, then do so as long as you sell them at a price higher than when you bought them. Of course, you should also invest the interest you’ve earned to buy another set of stocks.

5. Salary Negotiation

Another factor to improve personal cash flow is asking for a raise. Since your salary could be a fixed income source, getting a raise is the most sustainable way to boost your cash flow. What you’ll need here, though, is confidence.

If you know you deserve a better salary, then ask for it. Especially if you’ve been in a company for years, and your outputs are satisfactory, negotiating your salary will be a good move.

6. Start A Business or Side Hustle

Lastly, starting a business is also a good option if you have services or products to offer. Nowadays, doing business is much easier because you can do it online and reach customers from across the globe.

Or do side hustles. You only need to allocate some time and effort here because you can use your skills or talents to earn money. For instance, tutoring, writing, and graphic designing are some of the common ways to make money quickly.

Conclusion

The health of your cash flow relies on how well you spend your income. If you keep your expenditures lower than your income, then expect surpluses. But if your income can’t keep up with your expenses, you can do the ways above to earn more. Try them now and see the improvement in your cash flow. 

How to improve personal cash flow

FAQs for the article:

How do you solve personal cash flow problems?

The best way to solve negative or poor cash flow is to have a personal finance ledger. Here, you’ll be listing all of your expenses and income sources. Then, use your list to identify what creates cash deficits.

Knowing where your cash is going reveals potential shortfalls that you need to address. If you have fixed expenses, going for side hustles could be a solution. Or get a raise if you can.

How do you calculate personal cash flow?

Here, you’ll need to know your variable expenses, fixed expenses, and income. Then, add your variable and fixed expenses. You can now get your net cash flow by subtracting your income from the total amount of your expenses. In a formula, here’s how you should do it:

Income – (Variable Expenses + Fixed Expenses) = Net Cash Flow

A positive net cash flow will help you grow your savings, pay off debts, or invest in other assets.

Leave a Reply

Your email address will not be published.