What is cash flow anyway? The term cash flow comes from the English word and means “cash flow”. It shows how much money a person or a company has left over at the end of a period of time. Usually this is done for a month or a year.
To calculate the cash flow you need two components. To one the revenue. For private individuals, it is the main and secondary income. These extra income can be both active, or a second job, or passive as the profit from stock or rental income. The second component is the expenditure. These can be variable (changeable) from time to time period, such as a cinema visit. There are also fixed expenses that you pay monthly or annually. This can be, for example, the rent or insurance. If you have your income and expenses it is easy to calculate your cash flow. Cash flow is the balance (or difference) between revenue and expenditure.
Cash flow = revenue – expenses
If the cash flow is positive, then you have a financial surplus. It follows that the expenditure is lower than the revenue. This excess money can now be used for investment. If the cash flow is negative, then you have a deficit. Thus, the expenses are higher than the revenue.
5 reasons to know his cash flow
1) You can plan investments better.
By the value of the cash flow, you know how much money you have left at the end of the month or year. This gives you the opportunity to give you more detailed thoughts about your investment. You can plan exactly how and in what you want to invest, because you know how much money you have available.
2) You have an overview of your income and expenses.
By the amount of his cash flow and the documentation of this, you have a good overview of your finances. This includes both revenue and expenses. So you have the opportunity to summarize your income and expenses as values and to get them together. In the lower part of the post we have an app that helps you.
3) You are developing a different awareness about your finances.
You also have a new awareness of your finances. First of all it concerns the expenses. Through the constant documentation of these, you become more aware of what you are all about his money. You then think more carefully if you really want to eat fast food now or if the cheaper sofa does not. But spending does not always have to be negative. Even the one-off investments are part of an issue, but still increase the revenue. Thus, you also get a different awareness of your extra income, which are caused by investments. Because a higher income, the cash flow is also increased.
4) You plan your spending more accurately.
By documenting the cash flow and knowing how much money you have left over at the end of the month or year, you’re better off planning bigger expenses. Whether it’s a new TV, car, or house, you have the knowledge of how long you have to save on a particular request, or when you’ve paid off a loan.
5) You almost automatically set financial goals.
Setting a financial goal is something very important. Everyone should have their goal in mind. With the cash flow you have the opportunity to set your financial goal realistic, because you know your current status and can thereby set your goal. Achieving this is easier with the knowledge of cash flow. For example, if you have the goal of financial freedom, you can see how much you are in the cash flow plus how much you still need to achieve financial freedom.