Understanding and managing cash flow well is important. It is especially true when you want to achieve big goals like retirement, a car purchase, or a residential property.
It accomplishes no issue how much you accumulate or save. You can begin just where you are. The blog will help you manage the cash flow by following some steps. It will help you better get a hold of your finances. It is ideal for students and individuals with low or inconsistent income.
What do you mean by personal cash flow?
Personal cash flow implies managing your life’s financial goals without affecting basic payments and liabilities. It is more about understanding the money flow. It primarily involves your income and the things you spend on. It could be bills, groceries, payday loan debt, credit cards, etc.
Income may also include- dividends, rental income, part-time salary, pension, or retirement accounts. If you spend less than you earn, it reveals positive cash flow. Alternatively, spending more than you earn in a month reveals negative cash flow. It may affect your finances and financial stability drastically.
Why is it significant to work cash flow?
Before beginning the steps to control and balance your finances, let’s understand the importance. Why should you care about personal financial management? Here are the reasons:
Achieve your goals without delay
If you want to have a particular lifestyle, split your goals. Managing personal finance cash flow helps you crack this. You can split the goals into achievable bits. For example, check how much saving just £1000 per month takes to achieve a specific goal. If it takes longer, you can save more. Thus, it helps you crack goals without exceeding the timeline.
Identify the potential risks
How do your finances look in unemployment? Do you have any plans to manage things in such situations? If not, do it with personal economic administration. Detailed analysis helps you identify such risks and sort out the best solutions to deal with them. Planning helps limit the impact to an extent.
Payout debts quickly
You cannot grow and benefit from financial management unless you clear debts. It acts as the biggest obstacle. However, you can plan one by understanding your budget. Check how much you owe on each debt.
Analyse the minimum you can pay by calculating monthly payments and basic expenses. Personal financial management helps you understand the aspects that you may limit spending on. It will help you save money and clear debts quickly.
Alternatively, you can settle the most expensive debts despite bad credit with acceptance loans. You may get one with a regular income module. It helps you get instant cash on the same day. Paying even half of the high-interest debts could bring down your liabilities. Moreover, it optimises your credit score.
Steps to re-align and ensure better financial management
The first thing to do is to analyse how much you earn from multiple sources. It is if you have income from various sources like part-time income, dividends, rent, etc. How much of this goes to wants and needs?
Segregate one by checking your bank statements, credit cards, and loan slips. It will assist you have an view of how much you are left with monthly. Once you get the savings, here are the next steps to follow:
Step 1- Know and categorise expenses
It is one of the most important aspects to determine how to manage finances better. Check how much you spend monthly on essential expenses and wants. It is generally ideal to focus on needs instead of wants. Here are how your wants and needs structure may look like:
| Wants | Needs |
| Apparel shopping- £10000/month | Gas, water, and groceries- £2500 |
| Weekend gateways- £10000/month | Rent- £12000 |
| Dining out – £1800/month | Loan payments – 5000 (monthly) |
| Total- £21,800 | Total- £19,500 |
If this is what your monthly spending looks like, then you must change. Spend more on meeting the important payments and savings. Cut the extras that you spend on for example- here, you should avoid spending £10000 on monthly weekend gateways. It may cost that much if you plan every weekend. Instead, reduce it to one per month. In that case, you only spend £2500 instead of £10000.
Step 2 – Understand your tax liabilities
After analysing your income and monthly expenses, check the tax you must pay. In general, you are liable for property tax, council tax, income tax, inheritance tax, etc. Calculate your taxes and the amount you must pay.
Check the deadlines by which you can make payments. Determine whether you can set direct debits. Yes, you can do that for some taxes like council or income tax. Knowing the payment dates prevents you from attracting penalties.
If you struggle to pay the last tax, like inheritance tax, don’t worry. You may get loans with no guarantor or third-person requirement. Use it to fix the gap between the payments and pay the dues timely. You may get one if you have proof of reliable and consistent income and a reliable residential history. It reveals your responsibility towards ensuring a disciplined lifestyle. Hence, you may qualify.
Step 3- Prepare a budget for paying debts
After streamlining the taxes, move on to other debts. It may include payday dues, credit cards, personal loan payments, etc. Prepare a list by checking your updated credit report. It should include the name of the debt and the amount you owe on that. This is what it may look like :
| Debts | Principal amount owed (in pounds) | Interest costs (in pounds) |
| Quick loans | 2000 | 154 |
| Car loan | 25000 | 2,094 |
| Holiday loans | 15530 | 1,054 |
Similarly, you can create a list of the debts you owe. Don’t forget to include the missed payment penalties and additional interest costs. It affects your credit score too. Seek immediate solutions from creditors if you struggle to pay a particular debt.
He may help you by reducing interest costs or dropping off the total amount to repay. However, it is a rare situation and possible if you never missed a payment earlier. Here, you can set up a budget to repay the small debts first.
For example, here, you may concentrate on paying payday loans first. The amount is fairly small and easy to budget. You just need to cut some unnecessary expenses and delay some purchase plans.
Step 4- Try to increase your savings
How much do you save currently? For example- if you earn £45000/month and £43000 goes towards expenses, you save only £2000. That’s not enough to achieve your goals. Instead, you need to work differently. Here is what you can do to save money at low income:
| Savings type | Amount |
| Emergency funds | £400 |
| Invest in retirement funds | 10-20% of your income ( £9000 if your monthly earnings are £45000). You must invest this much amount annually. |
| Take up a high-yielding savings account. | Save up to £20,000 per tax year. Choose saving account companies providing interest for up to 5.92%- 7% (at least) |
You can determine the ways to increase savings according to your financial lifestyle. For example- you can start investing in less volatile funds, REITS, emergency funds, etc. Additionally, don’t forget to use the tax benefits. Emergency funds are especially helpful in meeting urgent needs in difficult times.
However, if you lack that but need cash urgently, contact a private lender nearby. Check the authorised one by analysing the reviews. He may help you with instant cash for your personal needs. You may get the money immediately by providing basic details. Alternatively, focus on building emergency cash savings by keeping aside a fixed amount every month. You can begin with even just £50/ month.
Step 5- Review and improve your budget
Review your expenses, income, and additional earnings periodically. It is important as life goals change and you accomplish some. For example- after achieving your goal of car ownership, you may want to buy a home. It requires some financial changes, like increasing savings to save for the mortgage deposit. Similarly, analysing the current finances and finding the best ways to achieve future goals hassle-free.
Bottom line
Uncertain income, high monthly expenses, and unnecessary spending affect the budget. It affects the person’s ability to hit life goals and get debt-free. However, the above steps may help re-track finances. You can use it to streamline payments and boost your monthly savings. You can consolidate some challenging debts and save money. Similarly, invest in high-yielding savings amount and relish tax relief to boost the bottom line.
