Effectively managing your cash flow is critical to put you in control of your money rather than it being in control of you. Putting our knowledge into an actionable plan can be a challenge. Start new habits by following these six quick tips.

1. Set ambitious, but realistic goals

The first step to building better cash flow is to visualise where you want to be financially and write down your financial goals.

Don’t limit your goals to what you think is achievable now. If you are really serious about changing the way you manage money, write down ‘stretch goals’ – targets that will demand continuous improvements in your performance but are not impossible to achieve – put a time limit on them to help you track progress.

When setting your goals there are a number of factors you should consider:

• your age
• your health
• upcoming financial commitments
• short-term obligations
• existing debts and assets
• likely income.

2. Pay yourself first

One of the most difficult aspects of cash flow management is having the discipline to pay yourself a set amount to cover your day-to-day living expenses. You can arrange to have your living expenses transferred into a transactional account and bills automatically paid. Meanwhile, the remainder of your salary accumulates in a cash hub, so the money you have worked hard for starts earning interest.

3. Review the flow of your money

It helps to think like a business. They measure the money coming in against what is spent, as well as looking at what they own versus what they owe. They use this information to make financial decisions such as investment, borrowing, cost-cutting and expenditure.

It’s important to understand how these measures connect. When you can see the connection between money in (income) and money out (expenses), as well as what you own (assets) and what you owe (liabilities) it reinforces the importance of building assets that may help you generate income, and reducing the liabilities that create expense.

4. Consider your costs versus income

By simply understanding how much you are spending versus how much you have coming in, will allow you to have visibility over your potential to save.

Best practice is to look to minimise your costs in relation to your income. If you can calculate the proportion of your income that goes to meeting your expenses, you will be better placed to save money, reduce debt and start to build positive cash flow. It will potentially help you identify key areas where you are spending more than you realised.

5. Start budgeting

The first step towards achieving your financial goals is to have a budget. Your budget should take into account your entire financial position. Once you have a written budget, you might be able to see how a number of your expenses fall into a certain category. Visualising the percentage of your money going into these categories is a good opportunity to reprioritise your spending.

A Three Account Structure is a helpful structure for your cash flow to give you transparency and control over your day-to-day cash needs.  Include elements which are a part of your lifestyle and add items which are not included.

Account 1 ­ Working account

Used for your day-to-day expenses such as food, lunches, coffee and entertainment expenses.  The discipline here is once the funds are used you do not spend any more money on these items.  This should be your standard working account with ATM access.

Account 2 ­ Bills Account

Use this account to plan for your regular annual expense and bills.  Each fortnight you should work out an amount to go into this account.  The process here is if you are going for a haircut, or clothes shopping transfer the money across from the Bills Account to your Working Account, try to limit impulse buying and have a plan / purpose in mind when you go shopping.  This account ideally should be an offset account if you have mortgage debt and you should have NO ATM access on this account.

Account 3 ­ Long-term savings

The idea behind this account is to save for regular lifestyle things. The fun stuff like regular holidays.  This again if you have a mortgage should be offset account number 2 for the travel savings and NO ATM Access.

6. Get advice

Wealth Depot are always here to help you to get and stay on track towards achieving your financial goals.