>> Apr 8, 2016
Prudent people say that one key to achieving financial freedom lies in learning to manage money and not just making a lot of money. In fact, some people live comfortably on a fairly low income, but others struggle to make ends meet on six figures. What's the main difference between these two kinds of people?
The difference lies in how these people manage their personal cash flow. If you have struggled to pay your bills and save for future needs, some of these cash flow management tips might help you.
Owning Your Home
Homeownership works out well for some folks. Typically, these people intend to stay in their home for many years or in some cases, just get lucky because the home appreciates. However, renting has become a more popular option in the United States, and this is even true of people in higher income groups.
Renting a house, remodeling, or doing extensive repairs to a house usually means getting a loan and paying interest for decades. Along the way, homeowners need to pay for taxes, insurance and incidental repairs, too. Renters just pay their rent and this may be a cheaper and more predictable way to help manage cash flow.
Track Your Spending
If you decide to own a house or not, the first thing you must do is learn about how you spend your money each months. If you have not sat down and prepared a budget lately, you might be surprised by the way you spend and waste cash each month. You might not think that your personal expenses are the problem but they really might be.
If you find yourself carelessly spending $30 every day on lunch and trips to the convenience store, you need to think about the fact that you are spending $900 every month. If you can cut down a few trips to the corner store or stop dining out quite as much, you may be able to cut that total in half.
Imagine what you could do to improve your cash flow if you had an extra few hundred dollars freed up each month. If you print out your bank statements and credit card bills for the month, you are likely to find some places where you could improve your budgeting.
Watch How You Invest
Financial advisors may tell you that their managed fund or other financial product performs really well. However, you have to pay attention to the fees that advisor and the fund charge you for the pleasure of getting to manage your money. Fees vary wildly, so make sure that you shop around before you decide who you want to invest with and how you should do it.
Have An Emergency Fund
Nobody wants to have to pay for a trip to the dentist or auto repair shop for several months after the incident, but that's exactly what will happen if you don't have the cash to handle an emergency.
One reason that richer people stay richer is that they can easily pay in cash for necessary service, so they aren't stuck with bills and interest for a long time after they have the service. High interest rates on debt is a cash-flow killer.
When times are good, managing cash flow helps people live more comfortably. If this is done well, these good cash flow managers won't have to worry about bad times like other folks do. You will be able to respond to a variety of emergencies and opportunities in a positive way.
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