What Do You Mean by Cashflow?

Cashflow is the amount of money you have to spend after paying all your monthly bills (such as your rent or mortgage payment, car payment, and utilities). This amount is different for every person depending on their income, monthly bills, and any investments they might have. The most important part of cash flow is that you don’t spend more than you make. Not only will this help you avoid debt, but it will also ensure that you always have enough money to live comfortably.

What Do You Mean by Cashflow?

Why You Should Care About Your Cashflow

  • You’ll be able to avoid debt faster. If you have a low cash flow, getting into debt will be very difficult. You’ll have to be very careful about every purchase you make because you won’t have the money to pay for it immediately.
  • You’ll be able to build more savings. If you have a low cash flow, you won’t be able to save much. You’ll have to prioritize your spending, so you’ll have to be extra careful with your money. If you want to save, you’ll have to choose your purchases very wisely.
  • You’ll be able to pay for large expenses quicker. Similar to the last point, if you have a low cashflow, you’ll have to be extra careful with your money. If you want to pay off your car, house, or other large expense that takes a long time to pay off, you’ll have to wait longer.
  • You’ll be able to pay for your kids’ education faster. It will be very difficult to put money away for your kids’ education if you have a low cash flow. You’ll have to put off paying for larger expenses, such as a house or car, or you’ll have to prioritize your spending.
  • You’ll be able to take more risks: If you have a low cashflow, you might not be able to take as many risks with your money. You’ll have to be extra careful with your spending and make sure you have enough money to pay off any debts you might have.

Ways to Increase Your Cashflow

  • Reduce your monthly expenses. This is the most important way to increase your cash flow. If you want to increase your income, you must take less. Reduce your expenses, and you’ll have more money in your pocket.
  • Increase your income. This is a slightly controversial way to increase your cashflow. Some people might tell you that reducing your expenses and increasing your income is better. We don’t think that it’s better to either of these extremes. The best thing to do is to find a way to increase the cash flow that works for you. We’ll show you how in the next tip.
  • Invest. If you have extra money sitting in a savings account, you can invest it. There are several types of investments, such as stocks, bonds, real estate, and more. You can read more about investing in our article on how to invest.
  • Get a second job. Many people have a second job to increase their cash flow. You can work side jobs, or you can freelance for it.
  • DIY. There are a million and one ways to save money. The main point is to take advantage of free or cheap things.
  • Partner Up. If you have a friend who has a high income, you can ask them to split the bill or split the rent with you.
What Do You Mean by Cashflow?

How to Calculate Cashflow

Now that you know a little more about cash flow, it’s time to learn how to calculate your cash flow. This is simple, and you can do it right now using the method below.

  • Write down everything that you spend money on each month. This includes your monthly expenses, taxes (if you pay them, such as insurance, property tax, and vehicle registration), groceries, and anything else you spend money on.
  • Add up all of your monthly expenses. This includes your rent or mortgage payment, utilities, car payments, and anything else you have to pay each month.
  • Add up all of your other monthly expenses. This could be your insurance, groceries, clothing, and anything else.
  • Add up all of your other regular monthly expenses. This could be things like paying for transportation, internet, health insurance, or anything else.
  • Take your total amount and divide it by 12. This is your monthly cash flow.

Conclusion

It’s important to remember that you should never spend more than you earn. This will prevent you from debt and ensure that you always have enough money to live comfortably. With that being said, you can do a few things to increase your cash flow no matter where you are in your life.