Do not save what is left after spending, but spend what is left after savings

It is extremely important to maintain your financial health, and one method to achieve this is to determine your current financial situation and compare it to your financial goals and objectives. The first step towards building wealth is spending less than what you earn. A well-defined budget plan can help you to see a clear picture of your spending and income from month to month. Financial stability can be attained if you monitor inflow and outflow of your transactions on a monthly basis.

Cash flow planning is about understanding the sources of your income and where you are spending it. It will help you prepare your budget and make choices that are relevant to your financial goals for the future. Planning and budgeting for cash flow helps us –

• Develop a simple saving plan – The plan will help you determine what income you have left at the end of all your expenses.
• Make a list of expenses – By listing expenses you can see where your income is being spent, and you can modify your spending habits to save more.
• Identifying shortfalls if any – even when you plan meticulously, sometimes things can go wrong. Budget and cash flow management reports can identify this and necessary steps can be taken to remedy it.
• Goals – Based on your current and projected financial situation, you can determine whether the financial goals you have are realistic. In the event that there are any discrepancies, you can make the necessary changes with either a financial advisor or yourself.
• Contingency Planning – Creating a plan for unforeseen events like job loss, illness, and salary changes will allow one to create a contingency fund and set it aside in case of emergency.
• Retirement Corpus – As well as having a contingent/emergency fund, you should plan for your retirement and contribute to that fund regularly. If you do this, then you will retire early and have a sizable nest egg.
• Debt Traps – By budgeting, you can determine how much money is left after your expenses are paid and contribute that money to your savings fund. If you decide to take out a loan, make sure you have sufficient funds to pay the monthly EMI. A debt trap can be very easy to fall into without you realizing that you will not be able to repay it.
• Continual monitoring – With time, your income and family circumstances will change. Your end-of-year budget and cash flow planning should be evaluated for any changes or discrepancies. Any adjustments should be made to your budget for the next year.

Plan your budget and cash flow to reduce financial stress and to keep your mind at ease. When you receive a bonus or increment, invest some of it in your savings or retirement fund. It’s a good habit to invest in yourself first before even paying your bills. Using this method, you will first save and then spend.