What is Personal Cash Flow Management?

Cash flow management during the accumulation phase ensures that your outflows are less than the inflows so that there is surplus money left for savings and investments. Savings, when invested wisely, form a corpus.

Sushil Jain, CEO, PersonalCFO.in said, “A personal cash flow is important as it allows you to identify where your income is coming from and how it is being spent.” “You can then use this knowledge to determine how many daily expenses you are willing to sacrifice so that you have more surplus for future goals.”

That way, if you have negative net cash on a long-term basis, you can never achieve financial independence.

Anup Bansal, Chief Investment Officer, Scripbox said, “Ideally, one should try to save 30% inflows. It is possible that in a particular month, the outflows are high due to a target or need for an emergency. Effective cash flow management will ensure that you plan for goals and emergencies. Often, savings may not be enough to make a big purchase like a house, car, etc. So you may have to take out a loan to meet this requirement .Outflow due to EMI for loan(s) becomes part of personal cash flow management.You always have to maintain a balance between present needs and saving for future.Overall, the corpus for one needs to keep growing To achieve financial freedom.”

Cash management during the withdrawal phase ensures that your outflows are served by the available funds created during the accumulation phase. The amount needed is calculated differently for different people and based on one’s lifestyle, inflation rate, and specific lifetime assumptions. Normally, no major purchases take place during this phase. It is important to implement effective withdrawal strategies such as a Systematic Withdrawal Plan (SWP) during this phase.

Bansal said, “Effective personal cash flow management includes saving first expense, budgeting, tracking expenses, goal planning, managing payment cycle and managing liquidity later on monthly and yearly basis to keep track It is best to create an inflow-outflow statement. You should work with a qualified advisor to create a financial plan that includes individual cash flow management.”

Jain said, “The more positive money flow you have, the more money you will make. The more money you make, the faster you can build your finances.”

Therefore, the faster you build your finances, the sooner you will achieve your financial goals. Therefore, you should always have your personal cash flow management right.