The saying, “cash is king,” rang true when 6% interest in a savings account was a possibility. Today, we’re not earning anything near that. Instead, cash flow is the jet fuel for wealth creation. If you have plenty of cash left over every month after all your financial obligations are met, you’re able to put it to work. You can build an emergency fund, max out your retirement accounts, start a business, invest in a business, or work towards any other financial goals you may have.
However, improving your cash flow situation is not always a straightforward endeavor. While your income is likely to increase over the years, many people don’t see improvements to their cash flow. Why is that? They increase their spending in line with their increase in income instead of increasing their savings. The truth is, finding ways to increase your cash flow requires a holistic approach that examines both sides of the coin. With that in mind, here are five ways to increase your cash flow.
Reduce Your Expenses
This may seem blatantly obvious, but it’s surprising how many people struggle to reduce their expenses. It’s also surprising how many people don’t keep a budget and have no idea how much money they spend every month. What it really boils down to, though, is the presence of healthy spending habits, or lack thereof.
Reducing what you spend each month is like dieting, if you don’t pay close attention to what you consume nor have measures in place to hold you accountable, you’ll quickly fall off the wagon. Dieting is hard, but reducing your spending doesn’t have to be. Take a long look at what comes in and goes out every month. Try tracking your expenses for a week and see what you can infer from that information. Are there regular frivolous expenses you could easily go without?
Also, focus on spending money on what you truly value as opposed to things that don’t necessarily add value to your life. It’s not a sacrifice if you don’t value it. For example, if traveling is a big part of your life and very important to you, don’t cut back on traveling. If eating lunch out, however, is not important to you and it makes no difference whether you eat out or bring a lunch to work, then it should be easy to reduce how much you eat out.
Find a Good Side Hustle
If you feel you can’t reduce your expenses any further and aren’t due for a salary raise anytime soon, finding a good side hustle can be a great way to boost your income and increase your cash flow. More and more people are leaving the traditional 9-to-5 world in favor of the gig economy.
The gig economy is booming. With the rise of freelancing platforms like Upwork and Fiverr, opportunities to earn money for your expertise has only gotten easier.
Do you have some hidden talent or skill set that’s not already being tapped into? Maybe you’re a great writer, graphic designer or programmer and could do work for hire on one of these platforms. Find something exciting you’re skilled at and monetize it.
Avoid or Pay Off Bad Debt
Isn’t all debt bad? The short answer is no. There is such a thing as good debt. Good debt helps you build wealth or further your financial goals. Examples of good debt could include a mortgage or student loans with affordable interest rates.
A mortgage adds an appreciating asset to your balance sheet and student loans allow you to get a college degree and earn more over the course of your career. This should all be done within reason, of course, as you never want to over-leverage yourself or borrow foolishly without doing your homework first.
Bad debt, on the other hand, should be avoided. Examples of bad debt include financing an expensive car (a depreciating asset) or racking up large balances on credit cards. Credit cards, in particular, can get you in a tremendous amount of trouble. They tend to come with very high interest rates that only roadblock your path to paying them down. This quickly turns into a vicious cycle where you can’t afford large enough payments to put a dent in the balance. The interest keeps accruing and you’re unable to make progress towards paying the card down, yet all your cash flow goes towards making payments each month.
It never makes sense to hold a balance on a credit card, and making it a habit to pay them off monthly will ensure you avoid any debt problems in the future. If you’re currently working towards paying off credit card debt, start by allocating the majority of your payments towards the highest interest rate card first. Work your way from highest to lowest interest rates as you pay them off. Mathematically this will result in the fastest paydown.
Refinance and/or Consolidate Your Debt
If debt’s got you down and eating up too much of your cash flow, consider refinancing and/or consolidating your debt. Refinancing is the replacement of an existing debt obligation with another debt obligation under different terms. Debt consolidation is used to merge several debt obligations into one payment that helps to simplify, reduce interest payments, and enable you to pay off your debt faster.
Obviously, these options should only be pursued if they make sense. As it pertains to helping you increase your cash flow, the main goal of refinancing or consolidating should be to lower your overall monthly payment. However, it’s important to do so with caution, as you don’t want the end result to put you in a difficult position.
For example, if you’re considering refinancing federal student loans to a private lender, it could reduce your monthly payments. However, if you’re eligible for public student loan forgiveness, you’d be foregoing your right to apply after 10 years of qualifying payments by converting to a private lender. If loan forgiveness saves you the most money in the long-run, refinancing would obviously not make sense. As you can see, it’s important to understand and analyze ALL your options and how they may impact you and your goals before making any decisions.
Automate Your Finances
Automating your finances can serve numerous purposes. For one, it simplifies and can even remove most of the hassle associated with managing your finances. Knowing you’re making progress towards financial goals provides peace of mind. You’re free to focus on aspects of your life that really matter. Second, it can save money. Bills always get paid on time, thereby eliminating any costly late fees, and monthly savings goals are consistently met.
Last, automating finances forces you to ensure you always have enough funds in your checking account for automatic transfers. This in turn forces you to be more conscious of the money you spend to ensure you’re not overspending. Of course, this assumes you’re not spending above your means with credit cards as well.
If you’re struggling to increase your cash flow, I encourage you to try one of these methods. Start with a few small changes first. Small changes over time develop into habits, and positive financial habits are a good indicator of long-term financial success.
This article was originally published on Investopedia.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
