Strategies for improving your monthly cash flow
July 20th, 2015 by NSS Admin
One of the key concepts in avoiding debt is maintaining positive cash flow. Your household has a positive cash flow where in a given month its total revenues is greater than its total expenses. Similarly, your household will be in a negative cash flow position where in a given month its total expenses are greater than its total revenues.
You might be able to significantly improve your debt situation by improving your monthly cash flow situation on a consistent basis. There are essentially three ways that you can improve your monthly cash flow position:
- Reducing your monthly household expenses
- Increasing your monthly household income
- Reducing your monthly household expenses and increasing your monthly household income
Measuring your household’s cash flow
Consumers who have an accurate picture of their household’s cash flow are in a much better position to avoid debt problems than those who are not. Most Canadians don’t have a clue as to whether or not their household is operating at a positive or negative cash flow position in a given month—and by how much. If you have a thorough understanding of how your household is spending money each month then you might be surprised how you can cut your monthly household expenses.
Many people find it a helpful exercise to maintain a journal in which they write down every expenditure which they make. Most people who do this exercise for a month are shocked at not only how much money they spend in a month but also the amount of money they pay each month servicing their existing debt load. You might also discover that there are opportunities for you to save a substantial amount of money in the areas of housing, transportation, clothing, and discretionary spending such as entertainment, meals out, and vacations.
It is relatively simple to get an accurate picture of your monthly household expenses in those instances where you have a recurring monthly expense such as your rent, your mortgage payment, or your monthly telephone or internet bill. However, a significant percentage of our expenses are not recurring monthly expenses—but expenses which are incurred one a year, twice a year, or one an irregular basis. You might, for example, pay your car insurance once per year or twice per year. You might take one vacation to the Caribbean each winter or most winters.
In order to get an accurate picture of your monthly household expenses you need to include these non-recurring expenses in your monthly household expenses—but how do you do this? You do this by taking the total cost of a specific expenditure in a calendar year, dividing it by 12—the number of months in a year—and adding this amount to your monthly household expenses. If you take one Caribbean vacation per year at a cost of $1,200 then you need to add $100 to your monthly expenses—and you need to create a line item Caribbean vacation in the amount of $100, $1,200 divided by 12.
Reducing your monthly household expenses
Many, but not all, Canadians can significantly reduce their monthly household expenses. This is not a popular topic because it requires people to make sacrifices and it might mean a reduction in a person’s standard of living. If you have a thorough understanding of where you are spending your money each month then you might be surprised how you might be able to cut your monthly household expenses.
One area where you might be able to cut your monthly expenses dramatically is the amount of money spent on transportation. If you own a car this might involve selling your car and making do without a car. Alternatively, if you own a car you might be able to significantly reduce your monthly transportation costs by replacing it with a less expensive vehicle. If your household has more than one car you might to take steps to reduce the number of cars that you have.
Some people reading this article are going to respond by saying that I need my car to drive to work. And you might be correct. But have you ever thought about finding a job closer to home in circumstances where you might be able to sell your car? If you were to get a job closer to home then maybe you could take public transit or carpool or your spouse could drive you to work. You might be better off financially even if you took a significant pay cut. Many Canadians simply cannot afford the car or cars that they currently have.
Some Canadians might find themselves in the situation where they have leased a car which they cannot afford. If you are in this position then there might be an opportunity for you to dump this expense. There are firms such as Lease Busters which match people who want to unload their leased vehicle with someone who is looking to pick up a leased vehicle from someone who cannot afford the lease.
It is beyond the scope of this article to help you identify those areas where you can cut spending. However, you might find it helpful to answer the following questions:
What opportunities do I have to reduce my monthly living expenses in the following areas?:
- Meals Out
- Entertainment (including monthly television service subscription)
- Club Memberships
Increasing your monthly household income
Some Canadian households are in a position to substantially improve their debt situation by increasing the household’s monthly income. There are two key ways to improve a household’s monthly income. Firstly, by increasing household income generated through employment or business income. Secondly, some Canadians can increase their monthly household income by taking advantage of revenue opportunities associated with their current residence.
If you are currently working then you can increase your monthly income by getting a better paying job or obtaining a part-time job to supplement the income from your current job. If a member of your household is not currently working then there might be an opportunity for them to obtain some kind of work, part-time or full-time, or there might be opportunities for them to earn money working from home.
You might be able to generate some additional income from your residence. This might include one or more of the following:
- Getting a roommate
- Inviting a family member or friend to live with you who will contribute to household expenses
- Taking in a boarder
- Renting out part of your residence
- Charging board to your children living at home who are 18
- Stay-at-home moms might be able to earn monies looking after other people’s children
Depending upon your circumstances there might be a number of ways that you can increase your household income. If you own a cottage you might be able to generate some revenues from renting out the cottage for part of the year. If you own a farm there might be a number of potential revenue opportunities for you—a topic which is beyond the scope of this article.