You can use credit cards as an essential tool to help you successfully manage your cash flow. Shrewd cardholders use their cards to improve credit scores, accumulate savings, and manage everyday financial activity. But, don’t forget – credit is a two-edged sword. Those who abuse it can end up with spiralling debt… You need to remember some essential points about cash flow management if you want to stay on top of your finances and avoid debt. The guidelines below deal with the fundamentals of organizing your incoming and outgoing cash using credit cards, and we also provide some handy money saving tips:
Treat your personal life like a businessLet’s start with a fundamental financial outlook – think of your personal life as a business. Rent, salaries, and variable costs cannot be more than what a typical restaurant makes from selling meals, or it will rapidly go bankrupt. You should give your bank account similar consideration.
Spend less money than you’re makingSounds simple in theory, but it’s challenging in practice. We recommend creating an individual cash flow report accounting for all weekly spending and income. This will help you to implement self-imposed barriers and act more responsibly.
Track your expenses and income carefullyWhen you track your expenditures, you’ll probably be amazed by the number of small, random purchases that appear. They can build up over time and leave odd gaps in your cash flow plan. You need to track inbound cash. Your plan should include these entries:
- Ordinary income: This includes your fixed income, and your spouse’s income where applicable. Your salary is usually straightforward, but you should also list commissions and bonuses. Locked or reinvested income, unrealized capital gains from open positions in the stock market, or dividends should not be included. These funds are not directly applicable to your inbound cash because they are ‘illiquid’ (i.e. not easily converted into cash).
- Additional income: Savvy budgeters usually assign other, smaller sources of income to this section. These can include freelancing or consulting pay, pensions, government benefits; investment residuals and dividends that are not steady enough for inclusion in the ‘ordinary income’ section.
- Fixed expenses: These can include items such as rent, lease, and mortgage payments, scheduled investment contributions and taxes, and are the usual monthly expenses. Record these correctly under the date you expect to pay them. But, the list doesn’t end there…
- Variable expenses: This included bills that are mainly incidental. It’s the most challenging portion of a cash flow report. These expenses are difficult to predict and even trickier to track. They include items such as clothes, groceries, ATM withdrawals, medical care, and entertainment expenses (movies, restaurants, and streaming subscriptions, etc.)