How to Manage your Cashflow to Create Financial Freedom

Financial freedom looks different to everyone. Your definition of financial freedom could be being able to afford an annual holiday, having the money to buy a new car or to spend more on your lifestyle. As a Financial Adviser, the first step I take with my clients is goal setting. We need to set specific and measurable goals to be able to put a plan in place to achieve them. Putting a dollar figure and time horizon on the goal post helps us decide what we need to sacrifice now to make that happen. 

The Barefoot Investor is a popular book which discusses a ‘bucket’ strategy, which suggests splitting income between three buckets – the Blow Bucket, the Mojo Bucket, and the Grow Bucket. I applaud the way Barefoot has managed to draw interest and provide education in money management. However, this is an overly simplified approach which isn’t going to work for those with serious spending issues.

To really get on top of your cashflow issues, the first step is creating a realistic budget which includes ALL living expenses, including the extra luxury spending that needs to be managed. This step gives us a clear picture of where your cashflow is at currently and where it is going. You will need to pick a frequency for your budget, either weekly or fortnightly is usually easiest to manage and to fall inline with your pay cycle. 

The next step is to categorise the expenses to create separate buckets, and calculate how much needs to be regularly moved into each bucket. For my clients this step is personalised to each individual taking into consideration their current spending habits and money management techniques in order to create a strategy that is going to be easy to manage and that they can stick to.

Some tips for managing your budget:

- Make your budget realistic. Being in denial and under-estimating your spending is only going to make this process harder.

- Pick a budget frequency that is easy to manage and falls inline with your pay cycle

- Set up separate accounts for your different expense categories. Have a budget and know where your bills are being paid from and how much needs to be saved regularly in each account.

- Contact your service providers to see if your bills can be paid more frequently inline with your new budget cycle.

Now that you are managing your cashflow and you are saving for your expenses, the next strategy that needs to be put in place is what to do with what is left over.

For personalised help with better managing your cashflow get in touch at Kate@solacewealth.com.au or 0423 313 486.

Kate Trost

Senior Financial Adviser and Director of Solace Wealth Management (AR numbers 465078/1262350)

Authorised Representative of MyPlanner Professional Services (AFSL 425542).