Having an overview of how you use your money, and understanding your cash flow, will give you an insight into how you allocate your funds and how you might make changes to improve your budget.
To start with, separate your income into two groups:
- dependable (like your salary)
- other types (like dividends or capital gains from shares).
This will give you an idea of how much you have to work with in any given period.
Then, compile a list of outgoings, like:
- payments that you have to make (such as mortgage, car, rent, food, credit card repayments)
- other, discretionary things that you spend money on.
You can then use this information to find areas where your money is under-used, which opens up opportunities
You may, for example, notice that your cash flow cycle is long: your salary goes in but you don’t tend to spend it for a month or so. Perhaps you could earn more interest on that money instead of leaving it idle.
Alternatively, you may notice areas of waste that you can improve - for example underperforming investments or expenses without clear benefits.
Cash flow insight is also helpful for households where there may be more than one income coming in at different times, such as two partners’ salaries and/or earnings from investments.
It will help you with timing to ensure you can meet your payment obligations and balance the budget. You can also use it to increase your savings so you can achieve financial goals - for example, to work towards a holiday or to create a ‘rainy day’ account.