Managing your personal cash flow

When it comes to your finances, understanding and navigating your personal cash flow is one of the most important skills you can develop. Knowing exactly how much money you have coming in and going out of your account will help you feel in control, and ensure that both your current and future financial needs are met.

With this in mind, we’ve pulled together the following guide to help you navigate the basics of cash flow budgeting and management. Ready to take charge of your finances? Let’s dive into it.

What is your personal cash flow?

Managing your personal cash flow involves balancing your income with your expenses to meet your financial obligations and goals. It’s all about understanding the flow of money in and out of your account, including:

• Your income: The money you earn from your job, benefits, pension, or investments
• Your expenses: Any money spent on regular bills, groceries, credit and debt repayments, or entertainment

If you spend less than you earn, you’ll have a positive cash flow. On the other hand, if your expenses exceed your income, this is classed as a negative cash flow. With this, there may be a risk that you’ll need to dip into savings or take out loans to cover emergency expenses.

Cash flow management: The basics

Understanding your income and expenses is crucial, especially when it comes to saving for both short-term and long-term goals. So, here’s how you can get started with cash flow budgeting and management:

1. Tracking income & expenses

To get a clear understanding of your personal cash flow, you’ll first need to track exactly what’s coming in and going out of your account. Start by listing your monthly income streams, then do exactly the same for your regular monthly expenses.

This might include fixed costs like your rent, mortgage, and utilities, as well as other spending like your groceries, entertainment, and transportation fees.

After subtracting your expenses from your total income, you’ll have a personal cash flow statement. This will give you a clear snapshot of your finances and help you:

Identify patterns in your monthly spending habits
Spot areas where you might be able to cut back
Set achievable savings goals, including planning for future expenses

2. Build a budget

Next, let’s dive into the topic of cash flow budgeting. Once you’ve got an understanding of your income and outgoings, you can use this information to start building a budget.

Start by listing your income, then deduct all your monthly expenses, ensuring that you account for both long-term and short-term savings goals. Many people choose to follow the 50/30/20 rule, which involves splitting your income into:

• 50% towards your needs
• 30% towards wants
• 20% towards savings

Budgeting is essential as it helps you identify areas where you might be able to reduce spending and boost cash flow. For instance, are you spending money on subscriptions you no longer use? If so, think about cancelling these and putting the money to use elsewhere. Learn more about how to find and cancel subscriptions you don’t use with our handy guide.

3. Factor in irregular costs

Life doesn’t always go according to plan, and a huge part of cash flow management involves building a dedicated emergency fund to cover unexpected costs. If your car breaks down or your boiler requires emergency repairs, having an emergency fund can help you avoid needing to take out credit..

There’s no need to put away huge chunks of money, just set aside a small amount each month, paying it directly into a separate savings pot. This way, when surprise costs arise, you’re less likely to be caught off guard.

4. Avoiding overdrafts

Overdrafts are a common issue when it comes to cash flow. When you’re faced with a situation where you’re required to spend more money than you have available, you might be tempted to dip into your overdraft – which can often involve hefty fees.

Effective monthly budgeting can help you avoid this and ensure you have enough money in your account to cover your monthly expenses. Regularly monitor your bank balance, and keep a small buffer to avoid overdrawing.

5. Managing existing debt

Debt can have a significant impact on your cash flow, as interest from existing payments can quickly add up. So, if you have existing debt, it’s important to create a debt management plan that aligns with your current budget and cash flow goals.

Consider cutting back on non-essential spending to meet your debt obligations. Additionally, we always recommend setting up automatic payments to ensure you never miss a repayment.

The bottom line…

Achieving a positive cash flow is key to building long-term financial security, but it’s not always easy. Cash flow management is a skill you can develop over time, and the more experience you gain, the easier it’ll become to stay on top of things. Just remember:

Carefully track your income and expenses: It’s essential to have a clear picture of where your money is coming from and where it’s going. Keep a close eye on your expenses, and make sure you’re not overspending unnecessarily . 
Create and stick to a budget: A solid budget is the foundation for good cash flow management. Budgeting will help you feel in control, and ensure you have the funds to meet all your financial needs. 
Build your emergency fund: Factoring in irregular costs can go a long way in helping you stay on track. Save a little each month, then a surprise expense won’t derail your positive cash flow progress.

Moneyboat are here to help you stay afloat

Even with great cash flow management, there may be times when things don’t go as planned…

Perhaps you’ve got an emergency cost to pay for before you’ve had time to build up your emergency fund? In situations like this, you might need a bit of extra cash to tide you over.

Here at Moneyboat, we offer fair and flexible short-term loans ranging from £200 to £1500. We carefully assess each application on a case-by-case basis, ensuring applicants are a good fit for the product. If you’re accepted, you’ll be able to cover the expense and pay the money back in manageable instalments.

Looking for additional insights instead? Read more about how to budget when you're paid weekly and explore our financial wellbeing tips and support for more help and guidance.