Cash flow can become a big problem if you are spending more than you are earning.
Keeping a positive cash flow
Cash flow can become a big problem if you are spending more than you are earning. You might hide the fact for a while but as certain as night follows day the time will come when it all catches up with you. When that time finally arrives you can find yourself in all sorts of financial trouble and one of the first will be your good name. Once a creditor gets the slightest whiff that you might be heading towards financial strife the alarm bells start ringing and they will start demanding their money. They get particularly worried if you miss a payment and if you aren't honest with them they will report your situation to a credit agency and from there on it will be all down hill.
None of this is exaggeration, it is happening all day every day, somebody somewhere has run out of places to hide and they are exposed for all to see. All future credit is stopped. No more mobile phones, no personal loans and no mortgage acceptance for the home of your dreams. Why? Because you let things get out of hand and your cash flow dried up.
Too many procrastinating debtors can slow cash flow
It is easy for critics to show no sympathy for people who haven't been able to manage their cash flow successfully but there are many probabilities which can come into play that can cause your cash flow to dry up through no real fault of your own. This can happen when you are in business and you have been too lenient with your debtor policy. In these situations you might have earned the money but can not get it in because your debtors are procrastinating. This unfortunately is part of the business world. Debtors like to hang onto their money for as long as they can and if you have many debtors doing this your cash flow can dry up remarkably quickly. At least if you have debtors you can do something about it but if you are an individual who has simply been living beyond your means you can literally find yourself up against a financial brick wall.
Many people put off paying their credit card bills until it becomes too late. The interest becomes prohibitive and the card is taken off them, but the bill remains to be paid. Much the same can happen with an out of control mobile phone account. When this happens you will have no choice left but to knuckle down and begin the long hard road of paying your creditors off. It might change your lifestyle considerably but you will be left with no option other than declaring yourself bankrupt and that comes with its own long term problems.
A positive cash flow is simple. Don't complicate it
Cash in itself is quite a simple fact of life. We all need money to be able to exist in today's modern society. It is the stuff we all work for. It is the stuff we put in our wallets or purses. It is the stuff we have in a savings account that we can draw on when we want to. On the other hand it is not the money we have placed in investments, it is not the money you are owed and it is not the stuff you get from an ATM despite what your credit card provider calls it. Cash becomes cash when you can readily get your hands on it, it is yours alone and doesn't have to be paid back. If you have money due to be paid to you, it is not cash you can spend until you actually get it handed to you. You can even take it a step further if you are disciplined enough and only regard cash as being spendable money after you have paid your rent or mortgage, your car payment, your credit card bill, your mobile phone bill and anything else you are obliged to pay. What is left over after all this money has been paid is yours to spend as you wish. This amount is your personal cash flow. Your cash flow won't exist if you have too much to pay out.
To know what your present cash flow is you will have to draw up a budget. On one side you will have all the bills you have to pay each pay day, on the other side you list all your earnings. You must always have excess in your earnings column. If you don't you are in real trouble and will have to start selling off assets to lower what you owe or take another job whereby you can raise your income stream. Failure to do something about it at this realisation stage will mean the harder it will be when you start missing payments and your credit rating becomes affected.
You might not know it at the time but when you draw up a budget to see exactly where you stand as far as cash flow is concerned and you take action to do something about it, if you get a negative result, you will be exercising effective cash management. It is imperative you do this before taking on any new financial obligations. In this way you will always know exactly where you stand but whatever you do don't borrow money from any source unless you are certain you'll always keep a positive cash flow.