Repost: Personal Cash Flow Management
Over the past few months we’ve been exploring different strategies to help you pay off debt and improve your overall financial profile. If you’re working to pay off credit card debt, we recommend you check out our Debt Avalanche and Debt Snowball blogs. However, if you’ve accomplished your goal of paying down your credit card debt, building a strong personal cash flow management system can help you lower financial stress, automate savings, and avoid financial hurdles.
To begin, we recommend that you identify how much money needs to allocated to the following expense categories:
Fixed Expenses
Variable Expenses
Taxes
Once you’ve written down all expenses within each category, identify which ones can be automated. For example, if you pay your mortgage on the 1st of every month, find ways to automate that payment. Banks and lending institutions often provide auto-draft solutions or you can simply use the bill pay function through your bank or credit union. Finding ways to automate as many of your fixed expense and tax payments will cut down on the risk of missing a payment.
Next, look for trends in your variable expenses. The first thing you’re looking for is to identify whether or not you are spending more than you are bringing in. This exercise can be beneficial to make sure you’re not going deeper into debt and can help you get control of your spending. Our recommendation is to look for a trend to variable spending and try to automate a budget for key categories like gas, groceries, etc. Keeping your variable spending habits in check is the fastest way to start building a healthy savings account.
Now that you’ve automated your fixed expenses and budgeted for your variable expenses, it’s time to take the remaining amount each month and automate the process of saving money. Once you’ve identified the amount of money that will be left over each month after your fixed and variable expenses, set that amount to be automatically saved to a savings or checking account. It may not seem like a lot at first, but over time, this practice can help you pay for unexpected bills, vacations, or even retirement.
If you’re working to build a healthier credit profile and need assistance with resolving credit challenges, we’re here to help. Schedule a free evaluation today.