Data shows that Australians have never been wealthier and our household finances are in the best shape they’ve been for years. If that’s the case, why is it so hard to make ends meet?
Retirees and families are feeling the pinch because while their assets (superannuation and property) have been rising in value, interest rates are low and wages haven’t been rising. In other words, we may be asset rich, but we’re cash poor.
The aim is to improve your cash flow and better manage your money. Your salary or salaries are typically your most common form of personal cash flow. It’s your money coming in that you decide each month what to do with.
Even if you’re earning enough, if you’re also spending every dollar each month, you’ll likely run into a cash flow issue sooner rather than later. There’s no room to save, invest or pay down debt.
It’s important to understand how much you’re spending each month and on what and why. Here are some quick tips to understand where your money goes and improve your cash flow.
Quick tips to improve your cash flow
1. Reduce your living expenses
The easiest and quickest way to increase cash flow is to take a look at your current expenses and find ways to cut them.
Track spending, draw up a budget, and see what can be reduced. You’ll be surprised.
The first areas to focus on are the big hitters: rent/mortgage, bills, food and insurance. Here is some solid advice for cutting back on each of these areas:
- How to avoid rent stress this year
- 5 strategies to avoid mortgage stress
- How to effectively manage your bills
- 15 simple ways to save stacks on your groceries
- 9 ways to have a big night out with little spend
- Shopping around for health insurance could save you heaps
- 5 steps to reduce your home and contents insurance premiums
2. Sell (some) assets
If it comes down to it, remember you can always sell some assets to improve your cash flow. Some are much easier to liquidate and carry lower transaction costs than others. Shares and physical assets work much better than property here.
More on this: Should you invest in property or shares?
If you’re a shareholder, to improve your cash flow you might also choose to receive your dividends as income for a while. Make sure you run the numbers to see what the long-term cost of doing this will be. You may be missing out on the powerful result of compounding your returns, so think of this as a short-term cash flow solution only.
3. Find additional income
If it’s possible, bring in more income to ease the cash crunch.
This might mean a gradual transition from full-time to part-time work for those ready to retire. Or for mortgage holders who are finding it hard to pay bills on time, picking up extra hours, asking for a pay rise or working a second job or side-hustle can help you out.
4. Consolidate your debts
Consolidating your debts can improve your cash flow in the short-term.
If you have an outstanding car loan or credit card debt, you may be able to roll it into your mortgage. The interest rate will be substantially lower, so you’ll be required to pay less for your loans each month, freeing up cash. Note, however, that you may be adding years to the life-time of your debts, which could ultimately cost you more, so run the numbers and seek financial advice to weigh up the long-term impact.
That said, as a means to free up your cash flow right now, this is a good strategy for most.
5. Rent out your assets
Companies like Airbnb and Stayz make it easy to rent out a spare bedroom or (if you happen to have one handy) a spare house.
You can also rent your car via Car Next Door or Drive My Car, or even your car space via Parkhound.
You can actually make money from a surprising number of assets using companies like FedeRent or Gecko. Rent out your bike, camera, tent, dresses, drones, tow bar or musical instruments – in fact, just about everything you own can potentially make you a bit of extra money to improve your cash flow.
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