There’s no denying that it can be challenging at times to have a good handle on your finances, let alone track your cash flow.
It’s fair to say, that most don’t enjoy budgeting, however, budgeting is one of the most crucial components to financial success. It may help to start treating your finances as a business. For example, your profit margin is your savings capacity, which you can use towards your financial goals and ideal lifestyle.
However, the first step to financial independence and stability is mindfulness and self-awareness. If you’re finding yourself having to go without more often than not, then it might pay to monitor your cash flow.
This can allow you to make necessary moves and adjustments to your lifestyle to work towards your financial goals.
When you’re trying to set up your life and your financial goals, it’s important to have some idea of where you’ll be coming from (in terms of resources and assets) and where you’ll be going (in terms of income, assets, and expenses).
Once you have completed a financial analysis of all your assets, liabilities, income and expenses as well as how you manage your cash flow, it’s time to set your realistic and achievable goals.
It’s important when it comes to setting financial goals that you not only think of the long-term goals but also have in mind some short-term goals that can provide you with small wins along the way to achieving your long-term goals. This is important to have as it can keep you motivated and provide you with a sense of achievement.
When you are goal-setting remember these three important things:
Be clear: Your goals should be clearly defined.
Be realistic: Ensure your goals are achievable and tailored to your financial situation.
Set a time-frame: Adding a time frame to each of your goals can help set you on the right path to achieving them.
Bucketing could be a smart way for you to manage your money without the need for a complicated budgeting spreadsheet.
The aim of the bucketing approach is to split all your income into different sized ‘buckets’ depending on what your financial priorities and goals are. This approach can allow you to stay on track of your finances and feel more in control of your money.
It also allows you to better understand your cash flow and savings so you can gain a better understanding of where your money comes in and goes out.
For example:
Let’s say you start with three buckets and separate them based on short-term, medium-term and long-term.
Short-Term Bucket 1:
This bucket is your immediate spending bucket (or money you’ll need within 1-2 years). This may include your everyday living expenses, such as your regular bills, insurances, transport, groceries, school fees and debts.
Medium-Term Bucket 2:
This bucket could include your emergency funds and safety money. The money in this bucket is kept for unexpected expenses that could catch you off guard, such as home or car repairs, health emergencies, or paying off debts. This bucket can help you avoid having to get short-term loans and adding personal debt to your finances.
Long-Term Bucket 3:
This bucket could be considered your long-term savings or an investment bucket. You should use this one to put money aside for your long-term goals whether that includes an overseas holiday, a new car or even your retirement.
You could also use the money in this bucket to be invested in a growth investment portfolio, depending on your personal risk tolerance and phase of life.
There are many ways you could shape the bucket approach, this is just a guide of where you could start. A financial adviser can help you map out a suitable approach to managing your cash flow through either the bucketing approach or an approach that works best for you.
It’s important to remember that the right financial adviser will tailor their strategies to your financial situation and financial goals in life.
By managing your cash flow and tracking your finances regularly, you can monitor the performance of your financial strategies to ensure you are making the right money moves to achieve your financial goals.
For example: The Poole Wealth Portal can track the progress of saving for a deposit, saving for a renovation, clearing your debt or saving for retirement.
It’s important to track your cash flow of investments regularly as well as your personal expenditure, so you can ensure you are maximising your investments and personal cash flow. Without tracking and keeping an eye on things, it can lead you to have no real understanding of what you are spending your money on and how well your financial strategies are performing to achieving your goals.
One of the most common issues people face regarding their financial wellbeing is that they often take too many risks. Some people make impulsive investments and financial commitments, thinking they can turn a dollar into a dollar and a half using a little bit of hustle and determination.
The problem, of course, is that this is not a sustainable strategy for long-term financial stability. If you want your financial goals to go further, patience is required and you need a financial plan in place. This highlights another benefit to the bucketing cash flow approach, as it allows you to put money aside for certain areas in life. This can ensure your money is best protected for your future.
Cash flow analysis can help you plan for your financial future to be smart with your money and your investments.
When you better understand how you’re spending, what you’re spending, and what you’re earning, it can help you make sure you’re putting your money into smart, safe, and productive investments.
When it comes to investing it’s important you understand your options, the time period of those investments and the risks.
For example:
Shares is an investment option that should be considered a mid-long-term investment, so you have the best opportunity of reaping high returns. Withdrawing shares in the short term can leave you at risk of gaining a low return as it’s hard to predict what markets will do.
Cash flow analysis is crucial as it can help predict your future finances better. When you have a sound understanding of your expenses and income, you can apply some sophisticated financial modelling tools to determine your future financial situation.
This can be one of the best ways to see your financial situation through a long-term lens and make decisions that will help you reach your financial goals.
Having a better understanding of your cash flow will help you now and in the future.
Start by setting a budget and owning that budget and lifestyle. It’s important to also be honest with yourself. You and you alone are in charge of following your budget. If you know you are going to spend your money on luxury items in the short term, that is okay. Everyone’s preferred lifestyle and priorities are different. You do, however, need to understand how your spending will impact your long term financial goals.
Everyone’s financial and lifestyle priorities are different but effective cash flow management and budgeting can help you achieve the goals that are important to you.
Cash flow management in retirement is an essential element to a good retirement plan, so you can enjoy your life in the present and feel confident knowing that your finances are on track to achieving your ideal retirement in the future!
When you can use cash flow analysis to evaluate your finances, you can make smarter decisions about where to put your money. It also enables you to better predict your future income, assets, and expenses, leaving you equipped to plan your financial future.
It’s important to remember that without financial security, your life can feel limited and stressful. If this is something you’re struggling with, a personal cash flow analysis is an excellent way to start planning for your future and making your finances a priority.
Your personal wealth portal can provide you with one platform for all your financial tracking, superannuation, investments, important financial documents – even your will!
If you are looking for help with cash flow management and budgeting advice, we can help you.
Poole Advisory is a privately-owned boutique advisory firm offering a suite of financial advice services to help you get your finances under control. Our goal is to guide people towards their financial goals and overall stability in the future.
Contact us today to learn more about how our financial planners can help you.
This information contains general advice only, that is, advice which does not take into account your needs, objectives, or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial or credit advice that addresses your specific needs and situation before making investment or borrowing decisions. Taxation information is based on our interpretation of the relevant laws as at 1 July 2018. While every care has been taken in the preparation of this information, Prosperitas Partners Pty Ltd does not guarantee the accuracy or completeness of the information. The case studies are hypothetical, for illustration purposes only and are not based on actual returns
Poole Advisory Pty Ltd ABN 15 642 040 604 is a Corporate Authorised Representative (No. 001282603) of Prosperitas Partners Pty Ltd ABN 30 662 654 453 AFSL 544 917
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