There was a time, every couple of months, when I looked at the invoicing for my home business, saw the outstanding bills, and ground my teeth.
As my bank account dwindled due to mortgage and car loan payments, retirement account contributions, and paying off what I’d spent on my credit cards during the month, it was frustrating to know that I should have $2,000 more.
A similar feeling used to set in when a major expense appeared on the horizon, and we had to sit around waiting for the university’s distance education department to pull it together and deposit the pay for the online class my husband teaches.
It’s still frustrating to be in those situations, but learning to manage our cash flow has taken some of the stress out of our finances.
Cash Flow Management
Your cash flow management is about ensuring you have money available when you need it. Whether you automate your finances or not, it makes sense to have an idea of how much money you have — and when you will have it.
If you receive a paycheck every month on the 1st and the 15th, you should manage your expenses around when the money will be in your account. You don’t want to have bills taken out all at the beginning of the month. By the time the 15th rolls around you might be down to pins and needles, trying to avoid overdrafts.
Instead, figure out your regular bills, and make up a schedule.
I divide up my bills evenly throughout the month, with special consideration for the bigger items (like the mortgage payment) coming out later, when there is a better chance that my clients will have caught up with what they owe me, and when the stable portion of my husband’s income has all been paid for the month.
While it’s tempting to pay your bills immediately, just to get them out of the way, this can cause problems with your cash flow. Yes, you might make a certain amount of money for the whole month. And yes, your total bills might be less than your income. But timing does matter.
It’s poor comfort to know that you spend less than you earn overall when you pay one or two overdraft fees every month.
Look at the timing involved. If you have your bills automatically deducted from your account, there is a good chance that you can pick the day of the month. Look at your spending patterns, and your income. Then choose a day that you are more likely to have money in your account. If that means that you pay the power bill a week after your car loan payment, instead of paying them together, so be it.
Keep Tabs and Make Adjustments
In some cases, you might need to make adjustments. Pay attention to your finances, and watch for signs that your cash flow might be getting off track. This is especially important if you have a variable or irregular income. A recent experience with automation, a clerical error, and overdraft fees led me to decide to get overdraft protection with my checking account.
It basically amounts to a personal line of credit, but it’s nice to know it’s there, connected to my checking account, and ready in the event of cash flow problems. When everyone seems to be late paying, and when my husband’s paycheck is less than it should be due to an error, it’s nice to know that there is a cash flow solution in place to keep things moving naturally through our household economy.
We also make sure that there is a cushion in our primary checking account. We’d prefer not to use the overdraft protection, and a bit of a cushion reduces the chances of overdraft in minor instances of hiccups.
Even if you automate your finances, occasionally look into your situation. Make sure that there aren’t fraudulent purchases being made, and check for mistakes. Also, be ready to make adjustments if it appears that something unexpected is interrupting your cash flow.
Do you pay attention to your cash flow? What are some of the things you do to ensure that you don’t run out of money when it’s time to pay the bills?