Healthy Moves to Keep Your Cash Flow Pumping
January 21, 2020At the start of the new year, we’re all about positive intentions — spending more time with family, getting that promotion, traveling to a place we’ve always wanted to visit.
Add to your list a crucial financial goal: becoming cash flow positive, AKA covering your costs with cash to spare. Operating your finances “in the green” is a liberating experience. When we’re cash flow positive, we’re more equipped to live comfortably in the present and take control of our future.
Here are a few ways to boost your cash flow in the new year.
Think less, save more
You have enough on your plate. Why make saving more work than it has to be?.
To make saving simpler, set up a recurring transfer from your checking account to a linked savings account. This way, you won’t have to manually make a deposit each time you want to contribute to your savings.
You can also apply this principle to your investment accounts. For example, rather than waiting until Tax Day to make your IRA or 401(k) contributions, you can automate contributions to your retirement account on a fixed schedule.
When you or your investment manager take the contributions and regularly make stock or fund purchases, this method is called “dollar-cost averaging.” In addition to making contributions on a regular schedule, proponents of dollar-cost averaging say it can reduce the impact of psychological bias on our investment decisions, meaning it can help us:
- Avoid mistiming the market
- Stay calm, rather than make emotionally-driven investment choices
- Think longer-term
By actively contributing to your savings, you’re taking steps toward a comfortable future.
Build up your emergency fund
You may feel financially comfortable now, but ask yourself this: would you be prepared if you were hit with a shocking event? A medical emergency, a job loss, or a surprising change to your passive income?
Events like these are when an emergency fund can make a huge difference to our financial and emotional wellbeing.
An emergency fund is a savings account that can cover 6-9 months of living expenses. For some, creating this fund is only a matter of setting the amount aside, giving it the title “Emergency Fund,” and only touching it in the event of a major event.
For others, it takes time to build up this type of emergency reserve. It may seem like a lofty goal, but you’ve got this. Start by taking a look at your budget. If you don’t have a budget, make one. Determine how much you want to save, estimate a reasonable timeline, and see how your savings goal fits with your budget. Don’t worry if it’s an iterative process — you might have to adjust your plan, and that’s okay.
Ditch your high-interest debt
If healthy cash flow is your goal, there is nothing more likely to stand in your way than high-interest debt.
High-interest debt, like credit card debt, can rapidly drain our funds. When you pay down your debt, you’re not only paying down your owed balance — you’re also reducing the amount of interest you pay each month. Saving and investing are crucial for a successful retirement, but what good are our savings if we’re accruing debt far more quickly than we’re able to save?
…So where do I start?
As with many things related to personal finance, the answer is: it all depends. Do you have high interest debt and low savings reserves? You may want to focus more on attacking your debt. If you have lower interest debt, like a mortgage, you will want to figure out a system that builds up your savings while staying on track with your debt repayment.
Everyone’s situation is a bit different, but there are principles we can learn and live by. At SWM, we believe in providing transparent financial services that align with your financial goals. We want to help you achieve your goals on your terms.