- Date : 24/02/2022
- Read: 3 mins
Managing your finances can be daunting, check out how to manage your Finances better
Managing cash flow can be an exhausting and tedious job. Digging deep into your expenses and figuring out your total cash outflow can be quite daunting. You do this to understand if you are earning more than spending and need to cut down on your expenses.
For yourself, cash flow analysis can be embarrassing if you feel that you spend less but find out you spend way more than you should. Unfortunately, this is precisely why you like to ignore this reality and just want to invest. Financial planning might sound boring, but it is essential if you wish to live a financially secure life.
Importance of Cash Flow Analysis
Ever wondered about retirement planning? It's known as retirement planning when you manage your present finances and invest your surplus that you generate to lead a comfortable life in the future.
Post-retirement, you would not have any income coming in, and your savings will be the only light in the dark. So you need to set goals about how much you need to spend, save, and invest for this precise reason and for this, you need to refer to a cash flow statement.
Also Read: What's Your Budgeting Style
Managing Debt and Purchasing Assets
If you ever want to buy a car or house on loan, you need to do considerable financial planning. First, it would be best to understand your cash flow position as banks will look at your credibility and capacity as a borrower. The banks will focus on the repayment of the loan, and you would want your financials to look organized and up to the mark.
Insurance can be seen as an investment for the future. A good portion of your earnings might be going into insurance. You might have several insurance policies in your name but might not know the nitty-gritty of insurance covers.
Ideally, you should know the extent of cover offered and set your cash inflow and outflow accordingly. And this is where cash flow analysis helps.
If you manage your cash flow, you would have more inflow than outflow. Saving more and spending less would mean a surplus of money. You wouldn't have to buy things on credit, and you can straight up pay in cash to buy the item you have your eye on. You will also have an emergency fund in case something unexpected happens.
Also Read: Steps for a smooth claim experience
If your cash flow is negative, you need more sound financial planning. You will look for quick money, and your investments wouldn't be well thought out. Get rich quick schemes will entice you, and sound financial planning will go out of the window.
In simple terms, financial planning is essential for everyone. Your cash flow will tell you what you are doing wrong and how you can improve. It can also tell you how you are saving more and spending less. Thus it would be best if you started managing your cash flow.