Personal cash flow management creates an asymmetric balance between one’s cash inflow and cash outflow -the two different phases in one’s financial journey at the start of his/her career. The one-time is the accumulation phase, while the latter withdrawal phase.
Personal Cash flow management during the accumulation phase guarantees that your outflows are less than inflows so that there is surplus money left to save and invest. The savings, when invested prudently, create a corpus or collections.
Personal cash flow management is important because it permits you to identify where your income is coming from and how it is being spent according to many financial analysts. You can then utilise this knowledge to determine how many everyday expenses you are willing to sacrifice so that you can have more surplus money to put towards future goals.
In this course, if you have negative net cash on a long-term base, you can never achieve financial freedom or financial goal.
According to many financial analysts, Ideally, one should seek to save at least 30% of the inflows. It is feasible that in a certain month, the outflows are more than the inflows due to a need for a goal or an emergency. Effective cash flow management will guarantee that you have planned for goals and emergencies. Usually, the savings may not be sufficient to make a big acquisition like a house, a car, etc., so you may have to take out a loan to service this condition. The outflows due to EMI for the loan(s) become the domain of the personal cash flow management. You always have to keep a balance between current needs and saving for the future. Altogether, the corpus requires to keep growing for one to achieve financial freedom.
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Personal Cash flow management during the withdrawal phase guarantees that your outflows are serviced by the available corpus created during the accumulation phase. The corpus needed is calculated and different for different individuals and based on one’s lifestyle, inflation rate and typical lifespan assumptions. Normally, there are no primary purchases during this phase. Implementing effective withdrawal strategies like a systematic withdrawal plan (SWP) during this phase is important.
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Effective personal cash flow management concerns saving first spending later, budgeting, tracking expenses, goals planning, managing payment cycles and managing liquidity. It is best to create an inflow-outflow statement on a monthly and yearly basis to keep track of your investment. You should work with a qualified skilled adviser to create a financial plan that includes cash flow management.
The more positive money flow you have for time being, the more money you will make. The more money you make, the faster you can build up your financial fortunes.
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Therefore, the faster you build up your financial fortunes, the sooner you will achieve your financial goals or financial freedom. Therefore, you must constantly get your personal cash flow management right.