3 Tips To Better Manage Your Cash Flow

Posted on: 17 June 2018

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One way to maximize your income is to take steps to improve your cash flow. Your cash flow refers to how much money you have after you pay all of your bills. It isn't sufficient for your income to merely cover your expenses on paper; you also want to make sure that you have ample income to pay all of your bills on time. Here are three financial planning tips to help you better manage your cash flow.

1. Implement a Zero-Based Budget

A zero-based budget is a spending plan that gives every single dollar of your income a purpose. The purpose of a zero-based budget isn't to spend every dime that you make, but rather to make sure that you are maximizing the use of all your income.

With this type of budget, you need to take into consideration every single savings goal or expense that you need to budget for. Some items to include are retirement savings, college savings, gift funds, and miscellaneous expenses. 

For example, assume that after you pay your monthly bills and variable personal expenses, you have $1000 left over. Instead of leaving the money in your checking account where you might chip away at it slow, give each dollar a job. You might decide to put $500 in your IRA, save $200 for future car repairs, and use the remaining $300 to make an extra debt payment.

2. Set Up a Sinking Fund for Irregular Expenses

For many individuals, irregular expenses are one of the biggest issues when it comes to properly managing their cash flow. Even though you know you will have the expense, it still shakes your budget because it is not something that you have to pay each month. 

Take control of these irregular expenses by establishing a sinking fund. Each payday you will allocate money to the sinking fund so that when these irregular expenses pop up, you have the cash for them. Some items you may want to use a sinking fund for are Christmas, back to school shopping, your annual property taxes, or your car insurance premium.

3. Make Sure Your Tax Withholding is Set to the Appropriate Amount

If you find that you are struggling with your cash flow each month, one way to put increase your income is to change your tax withholding. Instead of getting a large tax refund that you have to wait for and are likely to spend on non-essentials, you can put a few hundred dollars back into your monthly budget. This will make it easier to achieve your savings goals, fund your expenditures, and pay your bills on time.