Personal cash flow management creates a balance between one’s cash inflow and outflow – the two distinct phases in one’s financial journey early in one’s career. The first is the accumulation phase, while the second is the withdrawal phase.
Managing cash flow during the accumulation phase ensures that your outflows are less than your inflows, leaving excess money to save and invest. Savings, when invested wisely, create a corpus.
“A personal cash flow is important because it allows you to identify where your income comes from and how it is spent,” said Sushil Jain, CEO of PersonalCFO.in. “You can then use this knowledge to determine how much daily spending you’re willing to sacrifice so you can have more surplus to put toward future goals.”
In this way, if you have negative net cash in the long run, you can never achieve financial freedom.
Anup Bansal, chief investment officer at Scripbox, said: “Ideally, one should strive to save 30% of inflows. It’s possible that in a particular month, outflows are more than inflows due to a requirement for a goal or an emergency. Effective cash flow management will ensure you have planned goals and emergencies. Often, the savings may not be enough to make a large purchase like a house, a car, etc., so you may have to borrow to meet this requirement Outflows due to EMI for loans become part of personal cash flow management You should always maintain a balance between current needs and saving for the future In general, the corpus must continue to grow for one to achieve financial freedom.
Cash management during the withdrawal phase ensures that your outflows are met by the available corpus created during the accumulation phase. The required corpus is calculated and is different for different people and is based on one’s lifestyle, rate of inflation, and typical lifespan assumptions. Generally, there are no major purchases during this phase. Implementing effective withdrawal strategies such as a systematic withdrawal plan (SWP) during this phase is vital.
Bansal said, “Effective personal cash flow management involves saving first and spending later, budgeting, tracking spending, planning goals, managing payment cycles, and managing liquidity. It’s best to create a cash flow statement.” monthly and yearly in and out to track. You should work with a qualified advisor to create a financial plan that includes personal cash flow management.”
Jain said, “The more positive money flow you have, the more money you make. The more money you make, the faster you can build your finances.”
Therefore, the faster you build your finances, the sooner you will reach your financial goals. Therefore, you should always manage your personal cash flow correctly.