Top 5 tips in managing cash flow effectively

A lot people think cash flow management is something simple that everyone will know how to start and monitor. Well, it is just between Money-in or income and Money-out or spending, isn’t it? However at the end of each month, many individuals are surprised that they spent more than they thought they did. In the long run they create debts and will think financial independence is just for minority and not for everybody.

The main reason people struggle financially is because of the total absence of financial literacy in their progression in educational institutions. This result is in people learning to work for money, but never learn to have money work for them, say Robert Kiyosaki, the author of Rich Dad, Poor Dad. Hence I would like share my professional view with you in the hope that you gain basic concepts and ideas to allow a change in your ways of managing cash flow.

2 cash flow tips on managing money-in or income

1. Income – reinvested
Each month before you allocate your money to spending you invest a portion for another you – your future, which is retirement where you may not have any income. You may allocate it to be invested in Non Taxable Income or Non Taxable Assets for purpose of retirement funds, children education fund and etc. You should treat this investment as an expense – as an alternate to splashing on expensive lifestyle. After all, it is not about how much you earn but rather how much you save and invest – that will make you rich! If you have any concerns on the margin of savings and investment while worried over necessary liquid cash and risks in investment, then do seek advices from a professional.

2. Create new skills for future income streams
The pandemic forces people to rethink their normal lifestyle and possible future challenges. Many face pay cut, taking unpaid leave and even lost in business income, among others. This global destructive event may have allowed you time to develop online marketing or engage in your bakery hobby which may generate a small passive income. In any case, it is critical to have alternative skills which may be the platform for earning passive income in the future.

3 cash flow tips on managing money-out or expenditure

1. Simplify and Prioritize
Undertake activities that can brings you income rather than engage in spending on the usual stuff to keep pace with lifestyle and indulgence. We are aware of this issue and need to act upon it. Example, inviting a friend to enjoy a cup of coffee at home cost RM3 while the same in a cafe cost more 150% more. These negative addictive habits extend to cutting off savings for building emergency fund or long term acquisition of non-taxable asset for retirement fund. This short sightedness will cost us severe financial woes over time.

2. Wise Credit Card usage
Credit cards, common in all our wallets, can be a doubled edge sword. If you are foolish and unrestraint it will create a huge hole in your financial flow and foundation, on the other hand, if you used it correctly and responsibly, it will help to facilitate cash flow. Use credit card as your debit card to spend within the budget in the bank account. Use credit card for fixed and periodic payments e.g., insurance premiums and utilities bill. Use it also as an auto billing from active bank account to settle monthly credit card due – this is to avoid settlement delay which will draw a late payment interest.

3. Cap Travelling expenses
Avoid using year-end or performance bonuses for travelling expenses. Meanwhile, many companies are cutting down on year-end bonus and other monthly financial perks. It would be better to have a monthly saving of RM300 set aside each month for the next 2-3 years which will yield a substantial amount for several overseas holidays. This disciplined savings allow for a healthy cash flow while allowing you to engage in your travel pleasure.

The way we manage our cash flow today will determine our future financial status along with what we wish to achieve. The outcome can be most rewarding – owning a property or having a comfortable and worry-free retirement lifestyle, for example. In brief, planning ahead is much more productive and enjoyable than having to solve a list of financial issues and disasters later. The choice is yours in either having a healthy or negative cash flow. When you make a choice, remember, you are also choosing the consequences.

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