It is very simple: To gain wealth, you must spend less than you earn.
Being fiscally astute is not rocket science. Let’s review simple options to help you turn your spending habits around and achieve a positive personal cash flow.
- Settle bills by the due date unless there is an incentive to pay early. Your money is better placed to work for you in an interest-bearing account.
- Pay off high-interest rate debt to free up money. This is your priority task. Debt is not a given. Break the cycle and pay off your debts. Pay as much extra off the debt as you can. This will ultimately reduce the amount of interest you are paying and save you money. Short-term pain for long-term gain.
- Use credit cards as a means of delaying cash payments to manipulate your cash flow to your advantage.
- Be market savvy. Keep an eye on the interest rates you’re paying on your debts and make sure they’re competitive. If they’re not, speak to your bank.
- Evaluate your daily spending habits. Keep track of every item of expenditure for a month. It is probable that you will be shocked. Consider carpooling to work, making your own lunch and ditching the gym membership in favour of going for a walk with friends and family. You will be surprised how much you can save!
- Be Mean. Develop an attitude toward cutting costs, no matter how small. Turn lights out when you leave a room, sleep on purchasing decisions, never impulse buy, etc.
Making changes to your spending can feel hard. Persist. Being cost-conscious will have a far greater and positive impact on your life.
Are You Managing Your Personal Cashflow
Sue and Richard are a newly married professional couple. They have no children and earn a very decent income as corporate lawyers. The mystery was they were living pay to pay. Truth be told, they were behind! They had acquired few assets other than a great car, substantial wardrobes and an eclectic wine collection.
Sue and Richard required assistance to manage their income and expenses so they could save to purchase a home within the new few years. Their immediate need was to understand where their funds were going.
Their Accountant listened and reviewed the limited financial information they provided. The Accountant recommended that they start by completing a budget. This would allow them to recognize just what their outgoings were and therefore their capacity to save. From there, they arranged for their salaries to be split into various accounts, each of which would serve to cover particular outgoings. Surplus funds would be directed to a high-interest at-call account to be used to fund their goals.
With their immediate issue solved, the Accountant helped Richard and Sue to develop clear financial and lifestyle goals then created a cash-flow management plan designed to achieve them.
Benefits to the Client
Today, Richard and Sue have begun saving for their first home. Their Accountant will also continue to help them build and protect their wealth for the future.