Managing personal cash flow creates a balance between cash inflows and outflows – the two distinct phases of his financial journey early in his career. The first is the accumulation phase, while the second is the withdrawal phase.
Managing cash flow during the build-up phase ensures that your outflows are less than inflows, so there is excess money left to save and invest. Savings, when invested prudently, constitute a corpus.
“A personal cash flow is important because it allows you to identify where your income is coming from and how it is spent,” said Sushil Jain, CEO of PersonalCFO.in. “You can then use that knowledge to determine how many daily expenses you’re willing to sacrifice in order to have more surplus to spend on your future goals. “
This way, if you have negative net cash for the long haul, you will never be able to achieve financial freedom.
Anup Bansal, CIO of Scripbox, said: “Ideally, you should strive to save 30% of admissions. It is possible that in any given month, outflows will be greater than inflows due to a goal or emergency. Effective cash flow management will ensure that you have your goals and emergencies planned. Often times, the savings may not be enough to make a large purchase like a house, car, etc., so you may need to take out a loan to meet this requirement. The outflows due to EMI for the loan (s) are part of personal cash management. You should always maintain a balance between current needs and saving for the future. Overall, the corpus must continue to grow for one to achieve financial freedom. “
Cash management during the withdrawal phase ensures that your outputs are served by the available corpus created during the accumulation phase. The required corpus is calculated and different for different people and based on typical lifestyle, inflation rate and life expectancy assumptions. Usually, there are no major purchases during this phase. Implementing effective exit strategies like a systematic exit plan (SWP) during this phase is vital.
Bansal said: “Effective management of personal cash flow involves saving the first expenses later, budgeting, expense tracking, goal planning, payment cycle management and cash management. best to create an input-output statement on a monthly and yearly basis to keep track. You should work with a qualified advisor to create a financial plan that includes managing personal cash flow. “
Jain said, “The more positive money flow you have, the more money you will make. The more money you earn, the faster you can build your finances.
Therefore, the faster you build your finances, the faster you will reach your financial goals. Therefore, you should always properly manage your personal cash flow.
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