Cash flow simply means how money enters and leaves your pocket or your business. It is the everyday movement of money. Most of us prefer that money moves in more than it goes out because it makes life feel easy an livable.
In this post we'll make a little explanation about cash flow then subsequently we'll go ahead to understand the importance of cash flow in the survival of any business or investment.
Cash flow in simple terms =
- Money that comes in eg salary, sales, profit made, or any amount someone pays you for services rendered.
- Money that goes out eg rent, food, bills, transport, salaries, and other expenses.
The goal is to always make sure that the money coming in is more than what is going out. A lot of us are earning very well but still struggle financially because we don’t track the movement of our money. Most people are just concerned about the next expenses to make because there is good chunk of money flowing in constantly, and that is a very bad way to manage ones finances.
If you have a very wonderful cash flow,, it gives you peace of mind. Because you are able to settle bills on time and still have something left to invest in opportunities that presents themselves to you. Poor cash flow creates financial pressure. This could lead to borrowing, delaying payments, or missing chances that could help one grow financially.
One easy way to understand your cash flow is to write down your monthly income and your monthly expenses. This could help you to have a clearer picture. And then you'll quickly see where most of your money is going and what you need to cut down on. Small expenses can quietly drain money if you don’t pay attention.
Timing of payment is another factor. Sometimes you may be earning well, but the money comes in late. If your income is delayed, you may struggle to meet your obligations and result to borrowing. This is usually a difficult situation to be in, but it is very important to reduce borrowing by making a budget that covers for the months you haven't been paid.
This post is just about understanding cash flow, subsequently we'll talk about importance of cash flow and how ones finances play a huge roll in their well being.
By the truth is that improving cash flow doesn't necessarily mean that you do something extraordinary. Simple actions such as cutting down on waste, reducing unnecessary spending, negotiating better deals, etc can help. It may even require you to slightly adjust your prices. These small changes can free up cash or cause in more inflow and there fore make condition easier for you.
Any smart investor knows that cash flow is the life line of their finances. Therefore when we properly understand the concept of improving cash flow, we gain better control of our lives and freedom. It becomes easier to plan, save, invest, and avoid many stress caused by lack of money or its misuse.
Posted Using INLEO