Cash Flow: Creating A Spending Plan
Jamie McIntyre - August 31, 2016
The biggest thing MAC Financial wants for our clients is a financially healthy future.
By generating positive cash flow, not only are you going to feel less stress, you will be able to save and plan for future events such as holidays, weddings, purchasing a house or starting an investment portfolio.
This doesn’t mean that you have to go without our financially starve yourself. A reliable cash flow and savings plan should include what you are spending now, and be viable and long lasting.
When we speak to clients about creating a plan, there are four main points that we take into consideration. By following these as a guide, you will be able to determine what can be realistically be put aside for future investments.
1. Track your spending for 90 days
This is not meant to be an exercise of guilt or shaming. We all spend money on things that are probably not necessary. What it will do is highlight how much money you need to continue your current lifestyle and put you in a position to make informed choices.
The 90 days of tracking does not need to be completed in a sophisticated or complicated way. It does need to be accurate and includes that second morning coffee. There are plenty of phone apps available if you are that way inclined, or simply write down in a notebook as you make purchases.
2. One bank account and one credit card
The next step we get clients to make is to consolidate. Your financial life will become a lot simpler and clearer if you have one bank account that your salary goes into and one credit card.
Banks continue to offer credit cards, and limit increases not out of the goodness of their hearts, but to be able to generate more income through annual fees, interest rates and the knowledge that Australians are among the biggest consumers or credit in the world. The average card holding Australian is carrying $4,300 of debt. It will make it a lot easier to bring that number down if you can clearly see in one go, how much you owe.
3. Cash spending allocation
Once you know how much you spend (after tracking for 90 days) and how much money you have (as you have consolidated your accounts), it is time to think about a cash allocation. In other words, how much do you now want to spend? Is there an opportunity to save? What are the priorities?
These are questions only you can answer, and they will naturally vary from case to case. Some people just want to be able to live comfortably, without the stress of how the bills are going to get paid and know how much can they spend at Christmas. Other people have specific plans or goals in mind like saving for a deposit on a house. Both these examples require an articulated plan that includes nominating what the cash allocation is and can be each month.
4. Create a cash economy
Go to the bank each week, and withdraw exactly what you need for the period. By doing this, you will be forced to justify each purchase as you hand over the cash.
At the end of the week, you will clearly be able to see what you have left to spend, or put away for something special. It sounds old-fashioned, but it works.
Creating a spending plan does not have to be a stressful or negative experience. The key thing to remember is that you need to understand what your cash situation is. Credit and debit cards while easy to use, leave us with a sense that we are not actually paying for something. By understanding your cash flow, you will be in an empowered position to make financial plans for the future.
By Jamie McIntyre
For more information about creating spending and savings plans for a financially healthy future, contact our office for an appointment to speak to an adviser directly.