Recognising the Signs of Healthy Personal Cash Flow



Managing household cash flow is much like small business accounting. As the chief financial officer at home your job shares the same types of budgeting and spending responsibilities as a corporate finance expert. But if you are like many household money managers, balancing the books is not your favorite pastime. In fact, you may be at a downright disadvantage accounting for your family finances, lacking the experience and expertise required to prosper. If you are in over your head or need validation, recognizing the signs of healthy cash flow can help reinforce your confidence.

Balance and discretion are at the heart of budgeting success, so your primary responsibility running your household finances is finding spending equilibrium and maintaining it. As long as you don’t lose sight of this essential goal, the rest of your finances will fall into place – one way or the other. Lose balance and spending discipline, on the other hand, and your financial future is uncertain.

As you face every day financial demands, look for these signs of healthy personal cash flow. If you don’t see these hallmarks in your finances, you may need to change your approach.

Always Spending Less Than You Earn

The image of money “flowing” through your hands is accurate. As long as you’re working, earnings flow in, often through direct deposit, and then you go about making payments. Whatever’s left flows out as discretionary spending and then the cycle starts all over again. Most of time you don’t physically handle very much of the money, yet it flows in and out just the same. This cycle holds valuable clues to the health of your finances.

If you find the resources to pay your bills and meet your financial responsibilities each month, with money to spare, you’re living within your means and cash is flowing at a sustainable level. If, on the other hand, meeting monthly obligations is a recurring struggle, your personal income may be lagging behind your budget requirements. The only way to balance your budget is consistently spending less than you earn, so repeatedly falling short is a sign of unhealthy cash flow.

Borrowing with Discretion

UK consumers have access to widespread credit opportunities, so discipline is required to keep cash flow in balance. If it’s allowed to grow beyond affordable levels, the cost of personal debt can quickly drag down your financial health, so borrowing discretion is essential. Even with bad credit it is important to review lending options. And if you find yourself needing a fast financial boost, always use the transaction to build a positive credit reference. By measuring each loan or revolving credit opportunity according to these three criteria, you’ll avoid negative outcomes:

  • Is taking on additional debt absolutely necessary?
  • Can you afford to repay the money?
  • What are your options if circumstances change (job loss, major expense, etc.)?

Meeting Your Savings Goals

Effective cash flow management prioritises spending in order of importance. Your monthly recurring tally, including housing, energy, car costs, and other consistent demands typically come first, with the balance of your income directed toward other spending needs. Unfortunately, building personal savings isn’t always among the top priorities, falling victim to more pressing spending demands.

When your income supports the savings goals you’ve set, it can be interpreted as a sign of cash flow success. Not only have you met day-to-day demands, but you’ve dedicated the proper share of your earnings to personal savings. Once you’ve covered your monthly spending obligations and put away a share for the future, financial pressure eases and you can set your sites on your next financial priority.

Whether you are a seasoned money manager or a novice, healthy cash flow starts with spending balance. Consistently covering essential expenses and saving for the future are two signs of financial stability. If you’ve found a way to balance these demands, without sinking into debt, you are well on your way to financial security.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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