If you overspent at Christmas - you’re not alone!

The question is, what are you going to do about it? The new year is a great time to review your cash flow. First, to recover from recent overspending and second, to set yourself up for financial independence. Your life is busy and what you need is a simple but effective method for managing your cash flow. Read on to find out how to take control of your cash flow.

It’s a fact that most of us tend to underestimate our living expenses. In my experience, many people – even high income earners – find it difficult to say where their money goes exactly. Spending has never been easier – we click a button, tap a card or wave our phone without a second thought – and many of us are familiar with that sinking ‘out of control’ feeling. Getting back in control requires action but you may not know how. Some people give up trying and others settle for living with continual worries about how they’ll meet their daily expenses and debt repayments. Luckily, there’s another option…

You need a system

What you need is a straightforward and convenient system – that doesn’t demand hours of your time – for understanding and managing your budget and integrates easily with the rest of your financial affairs. I can show you how to use the following 3 cash flow basics to gain control and eliminate the stresses of overspending or struggling to meet essential expenses. Putting the 3 basics in place will also improve your financial understanding and benefit you (and your family) into the future as well as now.

#1: Never spend more than you earn

It all starts with knowing how much you earn – this is your income including the tax you pay to the ATO (it may be on your payslip or previous tax return). The tax is your money too and you may be able to keep more of it that you think with appropriate financial planning strategies in place. But that’s a different topic…

If you earn $80,000 p.a. and pay $19,147 tax, you will have $60,853 as you ‘take home pay’ to cover all your expenses over 12 months. In order to never spend more than your take home pay, you’ll need to review your yearly expenses and make sure they total no more than $60,853.

#2: Know where your money is going
Your spending probably falls into one of two categories: fixed and variable expenses. Fixed expenses are difficult to avoid and include essentials like mortgage payments, school fees, household expenses, car running and maintenance costs, personal and general insurances, private health care premiums, RACQ (or similar) and so on. Variable expenses are non-essentials including entertainment, travel, interests, renovations, savings, investments and more. It’s important to understand that variable expenses are the result of your conscious decisions and it is here where you can reduce your spending so that it doesn’t exceed what you earn.

#3: Save some of it

Once you’re spending less than you earn and your cash flow is under control, it will be time to save some or all of your surplus income. There is a range of saving and investment strategies that don’t require regular large amounts yet can make a big difference to your financial future. You may wish to use one of the many free online forecasting tools to set a savings goal and plot a savings graph for yourself. It can be very motivating to see the actual outcome of your regular savings habit.

TIP: If you set up a direct debit from your transaction account to your savings account, your savings will happen automatically. To make sure your savings aren’t forgotten, you can arrange for the money to go to savings on the same day as your pay enters your account.

Benefits

Cash flow control brings peace of mind from knowing that you have a system in place for the present and the future that will eliminate the negative impacts of financial stress. And you’ll be able to enjoy discretionary spending with the confidence that this won’t upset your budget.

Once you have control of your cash flow, I can help you set realistic longer term financial goals. These may include debt consolidation, wealth creation, regular investment in shares or property, contributing appropriately to super or other savings structures, and funding your lifestyle goals and retirement.

For more information about how to take control of your cash flow, please contact me on 5477 5124 or jeff@ekofin.com.au

Jeff Ebsworthy is known for helping business owners, professionals and retirees to make smart money decisions so they can live the life they want…

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.

Jeff Ebsworthy is an Authorised Representative No. 231824 of Magnitude Group Pty Ltd ABN 54 086 266 202 AFSL No. 22155 and is a financial adviser with EKO Financial Pty Ltd. EKO Financial Pty Ltd ABN 66 116 276 361 is a Corporate Authorised Representative of Magnitude Group Pty Limited ABN 54 086 266 202 AFSL No. 221557.