Cash Management
In previous blogs I have talked about Cash is King and Budgets - Vital for Everyone. I want to expand on this and discuss cash management - one of the most important things in managing your personal and business assets and liabilities.
The technical definition of cash management is the process of collection and managing cash flows. I like to describe it as making sure you spend less than you earn. There two main parts to cash management:
Calculation and Review
The first thing you have to do is work out what you earn and what you spend.
Once you have established this you then need to monitor and review this on a regular basis. I would suggest monthly but quarterly is another option and annually is too long.
There are many accounting packages that can track your cash movements but the key is to keep it simple and use a system that works for you - in most cases an excel worksheet is sufficient.
It is not an exact science so don’t worry about the last dollar.
Remember you are reviewing your cash movements so use the numbers that go in and out of your bank account.
The past is a very good guide to the future so look back over the past 6 -12 months to see what you have earned and spent previously.
If you are unsure of some amounts then estimate what they might be - you can update them later.
Challenge and Change
Once you have calculated your cash flow movements there will be one of two questions you need to answer:
If you are spending less than you earn what can you do with this “free” cash flow?
(See Risk Versus Return)
If you are spending more than you earn how can you change this?
In most cases your cash out (expenses) is the easiest thing to change as your cash in (income) is often fixed. Some of the things you can do to help reduce your expenses are:
Insurance - reduce cover, reduce excess, cancel parts of policy, get quotes.
Power - change plan, change provider, combine with internet, change lightbulbs (LED), programme power, use timers, lower hot water temperarture, insulate home, turn off lights.
Internet - naked phone line, have variable rates on useage, remove connections.
Mortgage - interest only, fixed rates, extend term, change lender, weekly payments instead of monthly, consolidate your debts.
Food costs - reduce “eating out” (especially the coffees…), start a garden, cook at home and take lunch to work.
Review subscriptions to Sky, Magazines, Newspapers, Gym, Spotifi, Netflix, Lightbox and other cable bills.
Review motor vehicle costs - do you need two cars? use public transport, carpool, cycle to work.
Sell unused and excess items - TradeMe and other markets.
Move home - further out of town or city. This is a big step.
As the old saying goes: “look after the pennies and the pounds will look after themselves”
James