I believe the venerable Wu-Tang Clan hit the target when they posited that “cash rules everything around me”. It’s a simple yet profound fact of the modern world we live in, largely applicable to those in all walks of life. Equally important, in my mind (though not as likely to serve as the foundation of an iconic hip-hop track), is that ruling your cash flow is one of the single most impactful steps to making progress towards financial goals.
Having the right system in place delivers real peace of mind and points you more directly towards what you hope to accomplish. Meanwhile, if no effort is made to intentionally manage the flow of dollars through your day-to-day life, you’re likely feeling the stress and holding yourself back.
So that’s what we’ll work through here: some strategies on how to take – and maintain – control of your cash flow. Because once you get that money, you still gotta know what to do with the dollar, dollar bills, y’all.
Who Needs to Take Control of Their Cash Flow?
Well, everyone!
The needs and reasons may be different person-to-person, but everyone stands to benefit from being in greater command of their cash flow.
It is not just for those who…
- Are running a deficit each month
- Are working to get out of debt
- Need to build up their savings
- Feel stressed when thinking about their income vs. expenses
It is also valuable for those who…
- Have a high income
- Are already saving at a strong rate
- Are on pace to meet their financial goals
By the way, controlling your cash flow doesn’t have to mean meticulously tracking every single dollar that passes through your accounts – though that might be the right move for certain people. And it’s also not strictly synonymous with saving or investing more. In some cases, it may even entail spending more in certain areas of your life. It really boils down being in tune with how money is generally moving and directing your available resources in a way that aligns with your intentions.
Where to Begin
Awareness is always the first step.
You have to run a thorough diagnostic to understand if there are any issues, and what exactly they are, before you start considering how to fix them. Don’t think there’s anything wrong? There might not be! But even highly profitable companies conduct financial audits. Regardless of how you feel about your current situation, this is a must.
To get the best picture of what your current cash flow looks like, I recommend reviewing at least the last three months. The most accurate approach is to pull up the statements for all your credit cards and bank accounts. Once you have them:
- Go through each one line by line, categorizing every expense and savings contribution (a simple spreadsheet can make this easy). Examples of these categories might be:
- Utilities
- Restaurants
- Gas (vehicle)
- Subscritptions
- Hobbies
- Emergency Fund Contributions
- etc…
- Add up the total amount in each category per month and then average them out.
This will give you a usable figure for how much you’re currently spending and saving on a monthly basis in different areas. Of course, spending on certain things (such as eating out or gas for your car) will fluctuate. But getting a working average is perfectly fine.
When people take the time to go through this exercise, I almost always notice the same results:
- They find the awareness gained from this process very powerful, often learning things they didn’t know or finally facing head on something they tried to ignore.
- “Ok, I didn’t realize I was spending that much on Amazon.”
- It becomes immediately clear where adjustments can be made.
- “I know I can definitely rely on Uber Eats less and still be ok.”
- If needed, people are generally more prepared to act on any changes.
- “Let’s go!”
Find a System to Manage and Track Your Cash Flow
Having a reliable framework and a continuous feedback loop (that works for you) helps you get more organized and then stay in control.
If your financial status quo has some cracks in it, it’s worth looking for tools to make your life easier. There is no shortage of apps out there designed for tracking your cash flow. A couple that I regularly hear success stories about are:
Additionally, a variety of different budgeting “approaches” exist. The right one for you depends on your needs and your style. A few of them include:
- The Envelope System: create set spending amounts for various categories
- Reverse Budgeting: pay yourself first and spend what’s left
- Zero-Based Budgeting: direct every single dollar to a specific purpose
At Upbeat Wealth, we like to steer the households we work with into a “Flow-Based Budgeting” system. We first learned about this method from a presentation given by Natalie Taylor and have incorporated our own flavor. At a very high level, here’s how it works:
- To start, all income gets deposited into a single primary checking account (a “source” account, if you will).
- Then, you break down your spending into three categories:
- Fixed Expenses are anything that does not change (or stay about the same) month-to-month, such as mortgage, insurances, gym membership, phone bill, monthly investing/saving, etc.
- Flex Expenses are those that do vary on a monthly basis, including things like groceries, self care, entertainment, etc.
- Non-Monthly Expenses are things that might get paid quarterly, every six months, or simply come up irregularly. Examples include travel, insurances, property taxes, etc.
- After you lay out all of the “fixed” and “non-monthly” expenses + savings, it becomes clear how much is available to go towards the “flex” category of spending. This creates a natural guardrail in your budget. Whatever that leftover amount is, that’s what is free to go to these expenses each month. You can even break it up into a weekly figure to monitor it more closely.
- The “source” checking account feeds everything:
- All “fixed expenses” are pulled out of here, ideally via auto-pay.
- Automated transfers are established to fund the “non-monthly” account. If you total the annual expense for all the non-monthlies, divide that by 12 and transfer that here each month.
- Finally, you can set up weekly transfers to the “flex” account to cover those. For some this is likely a category of spending that goes on a credit card. If so, you’ll want to keep that weekly card balance within the set limit and pay it off at the end of each week.
Free up Some Cash Flow by Targeting the Low-Hanging Fruit
There are almost always some easy places to win back cash flow.
Did you watch the Severance season 2 finale and know you won’t be opening Apple TV again until the 3rd one comes out? Cut that bill. If there are any subscriptions or memberships that you’re not actually using (or can easily live without), maybe it’s time to unsubscribe. A few bucks here and there add up. Mike writes more about our 3-step guide to evaluating your memberships and subscriptions in another post.
When’s the last time you shopped your auto or homeowners insurance? These types of coverages (and other property & casualty lines) are worth reviewing at least every few years. If it’s been a while, you very well may be able to lock in a better rate for the same coverage with another carrier.
Clarify Your Purpose and Any Trade-Offs
If change is necessary, zero in on your motivation to reinforce your efforts.
What is your specific goal in wanting to improve your cash flow management? It’s one thing to say you want greater control. There’s going to be much more friction if you’re crystal clear on why. Maybe you want to…
- Shrink that high-interest debt balance a lot faster
- Finally build up to a full Emergency Fund
- Save up for an international trip later in the year
- Treat you and your partner to more fun date nights
- Get closer to maxing out a retirement account
- Save for a house down payment
- Etc…
Whatever it is, put that purpose at the front of your mind. Without it, it will be hard to maintain motivation because any changes you have to make are going to involve very real trade-offs. Maybe putting more money towards saving for a much-needed new car will require spending less on eating out. If so, spelling it out like this might lead to better results than simply telling yourself that you’re going to restaurants too much and need to cut back.
- Lame: “We spend too much money at restaurants and have to cook from home more now.”
Cool: “By cooking from home a little more, I’ll be able to put $500 more per month towards the next car my growing family needs and drastically speed up the purchase timeline.”
Make the effort to define what things are most important for your money to go towards and why. Similarly, identify the things that aren’t as important for you to be directing resources towards.
Keep it Realistic and Celebrate Small Wins
Take it one step at a time.
If you’re normally spending $400 per month on food delivery services, it may not work very well if you immediately try pulling this down to $100 each month. Incremental steps over time will help you ease into change and keep with it. So maybe you’d target spending $100 less each month until you arrive at your goal of $100.
Are you focused on growing a bucket of savings for a major expense like a house down payment? Maybe you have a pile of credit card debt, and it’s tough to fathom getting past it. Financial obstacles like these could easily take several months or even years to overcome. A seemingly long road ahead can be daunting. Along the way, focus on smaller targets, acknowledging and celebrating in some way each time your balance for the down payment grows by another $10,000, or you pay off another one of the credit card balances. A lot of the big milestones we work towards involve major dedication. So help keep yourself on track by recognizing the smaller wins as you progress.
AUTOMATE, AUTOMATE, AUTOMATE
Remove as much thinking as possible. Automate savings and debt payments.
The less manual an action is, the more likely it is to occur. If you determine that you’re able to save or invest a certain dollar amount each month, go ahead and set up automatic contributions into those accounts. The same can be done with debt payments. You can set your credit card balance to autopay and even automate extra payments to any type of liability for those you’re working to aggressively pay down.
Automating gets you out of your own way. It also helps with the practice of “save first, spend second”. By ensuring your goals are being met first, it frees you up to spend what’s left over without any guilt.
Consider Setting the Credit Card Aside
If spending or credit card balances are getting hard to rein in, switch to strictly using the debit card.
By exclusively swiping your debit card, you can only spend what you have in the bank. It forces you to think a bit more before any purchase. On the other hand – with credit cards – it doesn’t matter how hard we tell ourselves otherwise, they simply don’t feel as real. And don’t worry about the points. The cash back and those miles are no good if chasing them ends up costing you more in the long run. It doesn’t have to be a permanent change, but it’s a sure way to curb spending.
Be Mindful of Lifestyle Creep
Take a proactive stance when income increases.
As your income goes up over time, continue to keep your focus on what is most important to you and your family. It’s ok if that means spending more money on certain things – as long as your other priorities are met too. You worked hard for it, why not put more towards travel, treating the kids, or whatever else brings you joy?
At the same time, a jump in pay is a wonderful opportunity to enhance progress towards goals. So when this happens, take a pause. Revisit your financial plan. See if you can identify tangible ways to put those new dollars to work in a way that supports your goals. If nothing else, consider initially saving at least half of the increase. Be thoughtful with what spending areas get the other half of the increase. One thing is almost certain – if you’re not intentional with it, the new income will find a way to disappear.
In closing, I can’t overstate the benefits of ruling your cash flow. While it may not make a good hip-hop hook, it is most definitely the foundation of a healthy financial plan.
Eddy Jurgielewicz, CFP® is a Partner and Lead Financial Planner at Upbeat Wealth, a fee-only firm based in New Orleans and serving clients virtually across the country. He specializes in providing straightforward financial guidance to ambitious young families as they navigate life’s many milestones.
Do you have questions about what we shared in this post, or anything else in general? Feel free to schedule a free consultation or drop us a line!
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