Tuesday, April 20, 2010

Cash flow management

This is the foundation of financial planning. With proper cash flow management, people are able to control their financial situation with more efficiency. If you are one of those who are able to save a large portion of your income while maintaining your lifestyle, you are already there. But for those who are having serious cash flow problems such as excessive debt, little or no savings, or volatile cash inflow, you might want to consider controlling your spending to prevent having insufficient resources to fund for retirement.

People usually underestimate the importance of cash flow management which can play a major role in your ability to reach out to a wider range of financial goals. Financial planners are always trying to educate people about the importance of saving money by setting up a cash flow system that generates a suitable level of savings after compiling information, identifying income sources and spending patterns.

Some tools for cash flow management is as follow
  • Debt restructuring. Get a personal loan to pay off all outstanding credit card balances as the interest for credit card is a killer to your cash flow
  • Asset reallocation. Make your money work harder. It can be done by moving underperforming assets into more productive investments which are still in line with your goals and time frames.

Net Worth

Net worth is the basic measure of a person’s financial health. In some cases, they are negative, however it does not mean that person is on the verge of becoming bankrupt. It just means that aggressive strategies need to be developed for debt reduction, higher investment return and realistic goal-setting.

If the net worth is positive, it does not mean that no financial planning is needed. Net worth should be viewed on a yearly basic, with a new target for saving to increase net worth and further stabilize it. It’s that simple, you just have to spend less and save more to increase net worth.

Financial disasters root of cause are usually caused by the inability to control spending, unwise investments.

Cash flow management is the starting point of the planning process. With proper cash flow management then you are able to fund planning for your goals.

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