What is Cash Flow?

Cash flow is the movement of money in and out of an entity. A positive cash flow occurs when more money comes in than goes out, while a negative cash flow more money going out than coming in.

All entities aim to achieve and maintain a positive cash flow to foster growth, sustainability, and resilience to economic downturns.

Here’s how I got to maintaining a positive cash flow:

Step One: Analyse Your Spending

Look at your spending face-to-face. Create a detailed calendar showing daily how much is coming in or going out on each day. There are banking apps that do this in various ways, but ‘if you want something done right you gotta do it yourself’. By recording your daily spend (I record my daily spend on a weekly basis) and taking time to look at where your money went will make more of an impact than if you’re just glancing through your bank statement. Also seeing your money in a calendar view will enable you to have a better grasp of your financial reality because you live by the calendar.

Keep spending as you normally would as the aim of this is to merely observe your behaviour and how they cost you in both living and leisure. You may also see or plan your financial security to try different modes of income. You can opt to make changes to self/ habit as you record your happenings. Soon after I started recording, I made several changes to myself and how I utilise money as I became more mindful of my interests and how they serve me. 

Step Two: Establish an Emergency Fund

Only to be used in an emergency. Key word emergency. I personally had difficulty maintaining an emergency fund. Everything was an emergency. I would have budgeted for the week and then, that last minute call to have a drink that I KNOW will turn into an all-nighter. Or the occasional splurge just because I’m anticipating income and I can put it back in the fund. not to mention the times when I’ve miscalculated how much money I was going to need for a period of time and had to dip into my emergency fund. Was it ever an emergency fund?

 

In order to overcome my ordeal, I needed to define my emergencies and made my words my bond. It worked. The main three I hold to then and today are; loss of earnings, family/friend aid, and home and car repairs. Otherwise, I leave the emergency fund alone. 

 

You should also have liquid cash. Liquid cash is cash that sits in your bank or wallet that allows you to avoid dipping in the emergency fund. 

 

I referred to my calendar, identifying how much I cost myself over the past 3 months. With years of personal data you may be able to recognise your spending behaviour by season. 3 months savings is a safe bet and is enough time to get out of any holes you may find yourself in.  

 

Working towards each goal is the start to achieving so don’t worry if 3 months’ expenses are taking over a year to achieve. We are changing habits. You will achieve the goals you set. Just work on it everyday.

 

This fund will continue to grow until it reaches your favourable amount but for now 3 months is an adequate point.

Step Three: Clear Debts

It’s not alien to maintain a positive cash flow whilst in debt, however debt matures over time and strips an entity of its resources. It bodes well that debts are eradicated as soon as possible.  

There are many different methods to paying off your debt. However, my favourite method is to start with the smallest amount. This is known as the avalanche method and appropriately named for my behaviour approach to clearing my debts as I find that my focus and discipline grows and the momentum increases.

 

Here’s how I went about it – 

 

I looked at my full credit report via TransUnion, Experian and Equifax and organised them in a spreadsheet. Details include name of agency, references, debts amount, time it takes to clear a debt etc. I had debts of £70, £180, £400, £1,290 and £3,675. Though the interest rates are different on each amount and time will make them worse, I am worried not. My endgame is to get rid of the debt in a way I can afford at a time I can afford it. Before paying towards each debt, I call to negotiate waiving fees, charges, and settlement discounts. Agreeing to a lower ‘new’ debt before making payment towards it. I began clearing my debt with £40 per week which later increased to £70.

 

I negotiated my £120 debt to £70 which got cleared in 2 weeks. Half way through Debt A, I began negotiating my £300 debt to £180 which got cleared within 5 weeks. One week before clearing Debt B, I negotiated £610 debt to £400 and cleared that in 10 weeks. My £2,000 debt became £1,290 and my biggest achievement was getting a £8,000 debt to £3,675. I was paying £70 per week towards the final two. In summary an £11,030 debt became £5,615 and got cleared within 2 years. 

 

I also took the extra precautions such as requesting a few documents from the agency to confirm certain statements are corrected or removed from my credit score.

 

My personal reason to clear my debts was to increase my likelihood of getting better credit cards as these give me ample rewards for my usual spend such as air miles and hotel rewards, discounts at my preferred restaurants and outlets, custom insurance policy and few others.

 

Step Four: Invest

At first, It’s difficult to pay attention to your future if the past is going by unnoticed and the present is foggy. At this point emotionally stability is in full effect and finances are used respectfully. 

You have now gotten to know yourself a bit more. You have also incrementally, within your remit, bring your emergency fund to your favourable amount. You didn’t come this far without knowing how much it costs you to operate on a day to day basis. You also know how much it sets you back to have fun and do a few mind-freeing activities; Trips taken, beaches walked, beer rounds, your weekly sporting etc. 

 

So now that your emergency fund is filled. Your living expenses, affordable and your leisure account is unlimited. 

 

Well then, full throttle ahead on investing. 

 

Investing is a key part of maintaining positive cash flow as ventures are being sought that will bring money into the entity. The way you invest will most likely suit the way you think or approach life, so it’s never risk free. Advisably keep liquid cash for when your investment opportunities show themselves.

 

Remember, maintaining a positive cash flow requires ongoing attention and discipline. By following these steps, you’ll be well-equipped to manage your finances effectively and achieve long-term financial stability.