Yahoo Finance 5 Ways to Improve Your Cash Flow
If you're constantly running out of money before your next paycheck arrives, you have a cash flow problem.
And given that the holidays are a time when people tend to spend more money than usual, this is as good a time as any to think about how to manage money better. If you're often looking for ways to improve your cash flow, try some of these tactics.
Study your budget. You have a budget (right?), but have you analyzed it lately? Budgets change. Maybe you upgraded your phone service three months ago and forgot to add the extra money to your budget. Maybe you bought your kids a guinea pig five months ago and never thought to add its food and bedding to your budget (OK, the guinea pig food costs are negligible, but you could easily spend $40 or more a month on bedding).
[See: The True Costs of Owning a Pet -- and How to Spend Less.]
At least once a year, and probably more often than that, many personal finance experts say, you should reexamine your budget.
Trey Taylor, owner of Taylor Insurance Services, an employee benefits insurance and consulting firm, is also a financial planner who has worked with the super rich as well as people who have suddenly found themselves out of a job. Whatever your financial situation, if you're trying to make your cash flow better, it's important to look for your "biggest cash flow hog in the budget," he says.
And if you can't find one, you may need to cancel several smaller ones. Last year, Taylor says, one of his clients was struggling with cash flow due to a hefty car payment. The client apparently didn't want to sell or refinance the car, or couldn't, and so he decided to trim other expenses and ended up finding $300 a month in savings by getting rid of subscriptions to magazines, newspapers and streaming sites like Netflix and Hulu.
For some people, that's the last thing they'd want to do, but the point is -- you probably have something you're paying for that you really don't want or use. Maybe a membership to a gym you barely ever go to?
Or maybe you eat out too much. According to a survey that came out early this year from Zagat, which polled 9,248 consumers, the average restaurant meal costs $36.30. If you're eating at restaurants even a couple of times a month, and then you throw in a few weekly fast-food stops on the way back from your kid's soccer practice (and you aren't budgeting for that), your ever-shrinking bank balance could be trying to tell you something.
[See: 11 Expenses Destroying Your Budget.]
Pay down debt, but don't be crazy about it. Yes, you should pay down your debt, but as you've likely already discovered, if you're too ambitious, paying off too much of that debt can cause you to run out of money.
The flip side? Only paying off the monthly minimums, especially where credit cards are concerned, may keep you in debt indefinitely.
"The key is to be strategic about it," says Tom Anderson, CEO of Supernova Companies LLC, a Chicago-based financial technology company that serves financial advisors. "If you have debt at an interest rate over 10 percent -- what I call oppressive debt -- then you want to pay that down as quickly as possible. But other debt closer to 5 through 7 percent -- think student loans and mortgages -- should be treated more carefully."
Change your withholding. Sure, it's fun to get a windfall of money after you do your taxes, but that may be the reason you're struggling the rest of the year.
[See: Spend a Windfall Wisely.]
"One thing to consider is reducing your employer withholdings or allowance. If you get a decent amount of money back from taxes each year, it's not a good thing. That means you loaned Uncle Sam [some] of your money for free, without gaining any interest on it," says Chris Miller, a financial advisor with One Atlanta Wealth Group in Atlanta, Georgia.
Of course, interest has been pretty low these days, but you get his point.
Create a cash cushion. Anderson also says that "building at least a cash reserve equivalent to one month's salary should be a priority."
This is more important than paying off the student loans and mortgage, according to Anderson, who says that the end goal should be getting a three-month cushion, to help out with "the emergencies that inevitably come in life -- job loss, a damaged roof or a loved one's illness."
Plan for those annual expenses that you rarely think about. Your annual car registration, any annual membership fees that you pay, your mother's birthday gift -- not thinking of these is what trips people up the most, says Justin Chidester, owner of Wealth Mode Financial Planning in Logan, Utah.
But we should be thinking about them, Chidester says.
"By creating a revolving expenses calendar, you can learn to plan appropriately for the non-monthly expenses that occur in your life," Chidester says.
He suggests brainstorming what random annual expenses come up throughout a typical year. Then add them up and divide by 12.
"This will give you a monthly average of how much these non-monthly expense items are costing you," Chidester says, adding that whatever you come up with, it's probably a lot more than you think. He suggests it may be as much as 10 percent of your annual income.
At any rate, you can at least start putting that money aside every month, to cover those random expenses.
"I've never worked with a client who was already doing this in their cash-flow plan," Chidester says.
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