How to Effectively Manage Cashflow

by Dominique Schuh

We often bandy around the phrase "cashflow" but it's probably time we took a deeper dive into this concept. "Cashflow" refers to the amount of money coming into your accounts or your business, as well as the amount that's going out. Understanding your cashflow and the patterns around this will only help to improve your money management as well as your sense of control around your finances.

We'll begin by breaking it down into two key areas: Personal Cashflow and Cashflow for businesses.

Personal Cashflow:
This really relates to what's coming in and going out of the household as well as the timing around that flow of money. For example, people who only get paid monthly may have a tougher time budgeting than someone who gets paid each fortnight, simply because money is coming in less frequently.

Assuming you've done your budget and you're clear on your income and expense amounts, the best way to manage your personal cashflow is to use a number of different bank accounts for different purposes. This idea isn't new – in generations, gone past people "saved" into jam jars for different purposes.

For example, let's say you've done your budget for the year and you've found it costs you $12,000 for your fixed house expenses (utilities, internet, phone etc). To cover this with your regular cashflow you should set up a separate "bills" account, that has a regular amount deposited into it to cover the $12,000 requirement. If this payment happens fortnightly you'd be paying $462 per fortnight into your bills account so that you know the full amount is covered for the year, and you don't have to go looking for the money when the bills are due.

Depending on what's important to you, you might set up your accounts along these lines, but there are no limits to the number of bank accounts that you might use:

Business cashflow:
For business cashflow the same concept applies, but many small businesses struggle with the requirements for quarterly BAS payments. The best way to overcome this is to have a separate "BAS" account where money is set aside for the regular BAS payments, so you're not caught short each quarter.
If any of these ideas appeal to you or if you'd like assistance with your cashflow, please don't hesitate to contact us. We're only a phone call or email away.