The Finance Blogger

Four Rules of Cash Flow

Four Rules of Cash Flow

Cash flow is the number one thing you should manage when it comes to dealing with your money, regardless of whether you own a business or just managing your own personal finances. If you manage your cash flow and always make sure you have money to pay your bills, your chances of going bankrupt are much lower! Your chances of missing a payment are also low, and you will not take a hit on your credit rating either when you forget to make a payment or do not have sufficient money in your account. Consider the four rules of cash flow management.

Four Rules of Cash Flow

Manage Your Cash Flow

Managing cash flow is just as important as managing debt, and interest rates, and loans. In fact, we feel that managing cash flow is far more important than any of these other areas since if you evaluate the impact on your cash flow each time you consider a loan or a charge to your credit card, you will usually make the right decisions. We wanted to write about this idea of managing cash flow because we felt that it was so important. Managing debt is clearly important, but as we indicated, debt is really secondary to managing cash flow when you take into account credit ratings and even quality of life. Always make sure you have sufficient funds available to pay your bills and expenses.

There are four rules for dealing with cash flow:

  • Give every dollar a job.
  • Save for a rainy day.
  • Roll with the punches.
  • Live on last month’s paycheck.

Follow these, and you should not have to deal with high debt, interest rate charges, and short cash situations. If you are living on last month’s paycheck, it means you have this month’s paycheck to deal with emergencies. If you are saving for a rainy day, then this money will be there for that emergency. You will really not need this month’s paycheck to get by.

Surplus Cash

Make your money work for you. If you have surplus cash, don’t spend it; put it to work, earning you money on investments or paying off debt to reduce your overall interest charges. There will always be surprises in your life. You just cannot get away from them, and you never know what they will be or when they will appear.

While they may be frustrating, your emergency funds will help you get past the problem and on to dealing with the next. You may even use all of your emergency funds. You may have to begin saving all over again to get that cushion in place. Look at it this way: at least you had the emergency fund in place to deal with it. Now, you can get on with your life and rebuild it.

Manage Cash Flow

Manage your cash flow in this manner, and you should be able to deal with just about anything that comes your way. This takes a lot of discipline and is not for the faint of heart. The temptation to use your emergency funds is really high, and most people will succumb to this temptation at some point and then realize that the emergency was not as bad as you thought. Try to build up your emergency fund as quickly as possible to get you and your family back to that safe place again.

Most people will need to build several emergency funds over their lifetimes, and this is probably okay as long as you have it there when you really need it. An emergency fund can really provide peace of mind when you are stressed about paying bills and short of cash. Only use your funds when it is really an emergency and not just something that is leaving you a little short. The money can go really fast, and it is hard to replace it. So, really take the time to make a decision about how you will use these funds.

For more cash flow ideas, click here.


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2 Responses to “Four Rules of Cash Flow”

  1. This is the best advice j have seen re managing cash flow

  2. manage cash flow Says:

    I am not sure where you are getting your information, but good topic. I needs to spend some time learning more or understanding more. Thanks for wonderful information I was looking for this information for my mission.

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