More than two in five Americans say they don’t feel financially stable. Worries over paying bills, growing levels of debt, and a lack of savings are more and more common.
You can reduce stress by taking control of your personal cash flow.
Improving your cash flow is more than being able to pay all the bills. Good cash flow means you can save money for emergencies. You can set money aside for retirement.
Start taking control of your personal finance by taking stock of your situation and following these tips.
Calculate Your Cash Flow
The first step in taking control of your cash flow is understanding where your money goes. Cash flow is your income minus expenses over a period of time. Most people measure cash flow on a monthly basis.
Write down your monthly income and subtract your expenses. Do this for three months to get a more accurate picture of your financial situation.
Prioritize Your Expenses
Financial experts often talk about the 50-30-20 rule. With this strategy, you use 50% of your income for necessities. This includes expenses like housing, groceries, and transportation.
Save at least 20% of your monthly income. A savings strategy is often more successful if you set that money aside first. For example, you can set up automatic monthly transfers into a high-interest savings account.
You can use the remaining 30% of your income for non-essential items, like restaurant delivery or tickets to a show. Establishing these categories helps you avoid spending more than you can afford.
When you look at your budget, you may realize that your expenses are too high. Lowering these costs will improve your personal cash flow.
The best places to cut depends on your situation. Maybe you can get a lower-tier streaming plan or a less expensive cell phone carrier. Maybe you could eat out less often.
Pay Off Credit Card Debt
Paying off credit card debt will improve your cash flow management. The interest rate on credit card balances can be more than 20%.
If you have good credit, you may be able to transfer your balance to a new card with no interest payments for an initial period. You can pay down the balance without interest accruing.
When a balance transfer isn’t possible, the best strategy is usually to pay off the card with the highest interest rate first. Make minimum payments on all the cards and then add more money to the one with the highest rate. Once you pay off that card, start working on the one with the next-highest interest rate.
Be Smart About Borrowing
Large purchases like a house or a car usually require taking out a loan. Good personal cash flow management depends on borrowing only as much as you need.
You could consider a used car instead of a new one. A more modest home may be enough for your lifestyle.
You can also consider alternative borrowing strategies like Infinite Banking life insurance. You borrow against the cash value of your whole life insurance policy. When you pay the loan back, you recapture the interest instead of a bank.
Start Improving Your Personal Cash Flow
Following these personal finance tips will help improve your personal cash flow. Better personal cash flow management starts with understanding where your money goes.
Then you can prioritize your expenses and cut costs when necessary. Paying off high-interest credit cards is another important personal finance goal. Having a realistic borrowing strategy is also important.
Better personal cash flow management is within reach when you start today.
For more useful tips like these, check out our other financial articles.