Practical Cash Flow Solutions in a Challenging Economy

Over the past year, we’ve experienced the impact of high mortgage interest rates and rising living costs, prompting us to seek solutions for our constrained budget. While there’s no one-size-fits-all remedy, several common strategies can help improve our cash flow.

Review Your Mortgage Interest Rate
It’s prudent to negotiate your home loan interest rate with your bank or consider refinancing every few years to potentially save on interest. Lenders often offer different rates to new customers that might not match existing customer rates. Carefully weigh your options before making a decision.

Review Expenses
Differentiate between essential “needs” (e.g., rent, mortgage payments, utilities) and non-essential “wants” (like entertainment, hobbies, etc.). While it’s hard to reduce essential expenses, you can shop around for better deals. For instance, re-evaluate your internet package – do you need the fastest available?

Create Separate Accounts
To manage your budget effectively, consider opening separate accounts for important expenses like holidays, kids' education, and hobbies. Allocate money to these accounts after covering essential expenses.

Cancel Unused Subscriptions
Review your bank statements to identify and cancel any unused subscriptions. Many people unknowingly spend substantial amounts on subscriptions they don’t use.

Credit Cards and Debt Consolidation
Be cautious of credit card balance transfers, which might increase your debt. Consider debt consolidation options for lower interest rates while avoiding potential credit score impacts.

Maintain Emergency Funds
During tight cash flows, people often accumulate higher debts. Maintaining a healthy emergency fund equivalent to 3-6 months’ living costs can help minimise unnecessary debts and prepare for unexpected expenses.

Invest in Growth Assets
While saving in banks may not keep up with inflation, consider investment in growth assets like property or shares for wealth accumulation. Investments that yield returns lower than inflation can diminish your wealth.

While reducing your expenses is one of the main strategies for cash flow management, there is a limit to how much we can cut back. If you want to break free from the cycle of earning and spending, it’s essential to create passive income streams, which effectively generate earnings even while you sleep. Think of it as your ‘money-making machine’. As your passive income reaches a certain level, you gain more flexibility with your expenses, eventually creating the potential to step away from your day job.

Personal finance book | Your Best Life

Written more like a novel than a self-help guide, Your Best Life is designed to walk you through the journey of financial planning.