26Jun

How to Achieve your Dream Retirement? – Cash Flow Management

Good cash flow is essential for wealth creation and capital preservation. Effective cash flow management is one of the most important elements in financial planning as it can have a significant impact on someone’s ability to achieve their goals and objectives and to deliver financial security throughout retirement.

Planning is vital in the cash flow management process. Effective cash flow management can only be achieved by creating positive cash flow (after expenses) that can be used to pay off any debt. Any surplus can then be used to buy income producing assets instead of only focusing on acquiring lifestyle assets.  It is important to expend less than what you earn, wealth cannot be achieved if money is not saved and invested in the first place.

Another approach to this is the method of ‘Pay yourself first’ which has become really popular. This method consists of setting aside money for investing, debt repayment or whatever your goal is and then using the remaining money to pay your monthly living expenses. Making the decision to pay yourself first removes the temptation to skip a planned contribution and keeps your savings and investment goals on track.

The first step to improving your cash flow management is to have a full understanding of your current position and long term goals and objectives. Once this understanding is achieved, good cash flow management can be achieved by setting up a budget and an investment plan and implementing debt management strategies if necessary. This might require lifestyle changes to be undertaken.

Once a budget has been established, it is important to regularly monitor and review the plan to develop strong financial habits and to keep the budget under control.

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