Cash Flow Management For Individuals

Everyone applauds a company for various business milestones that they achieve. It could be their seed round of funding or it could be their first Million. The top gun companies of the world celebrate being the best by following the habit of managing their money better.

Cash Flow Management is a scientific art of understanding and optimizing the amount of money that is moving into and out of a business. When a company can manage this with maximum accuracy then, you can truly find purpose driven products and services coming out of them. 

A venture capitalist finds immense pleasure in knowing that their portfolio companies are able to manage the invested money better. They end up calling these companies as companies with brilliant balance sheets. In a way, these companies would know how to plan and manage their money for sustainable long term growth. 

Why aren’t these ideologies used when it comes to financial planning for individuals? No one really considers looking at an individual’s cash flow at a comprehensive level, except for managing the money held by the super rich. This disparity shown towards the HNIs (High Networth Individuals) by the Financial Advisors has made it difficult for the commoners to build wealth in the most optimized manner. 

What needs to happen?

The best financial advisors in the world need to start managing everyone’s money in the most comprehensive manner and this comprehensiveness will come when they start optimizing their cash flow. 

The thinking has to move away from just working for commissions to working for what is needed for the customer. The certified advisors learn the art of financial planning which includes these comprehensive steps of understanding the customer and then, optimizing the best plan for them. Unfortunately, all those hours of learning simply becomes diluted scripts that will help the advisor earn extra commissions. 

It’s time for a customer first approach and start with working on an individual’s cash flow to get them a great balance sheet

What is Cash Flow Management for Individuals? 

When an individual’s personal finance is broken down into layers, you will notice four layers that play a strong role in their Life’s Balance Sheet.

1. Income

What we all earn as salary becomes the primary source of income for all of us and then, there are other passive income sources such as side hustles, rental property income, royalties etc. 

2. Expense

What we spend on, be it the needs or the wants. They all fall under our expenses. In practice, expenses are divided into personal, household and family expenses. This level of segregation is common among all.

3. Investment 

What we save is what ends up being invested. Normally, our savings are sitting in a savings bank account and earning interest of less than 4% per annum. Some of us take the smart path to save it in tools such as mutual funds, bonds to earn higher return rates.

4. Loans

What we owe falls on us as a liability. Loans play a good role in our lives if we plan to get one keeping our future in mind. There are so many avenues to get loans today starting from loans against securities to loans against gold aka gold loan. 

When these layers are understood and optimized with personalized suggestions then, there is continuous positive growth. The advisory team needs to do this for every single individual and help them with not just investment suggestions but also on how to budget better for themselves and their families etc. 

Why is this very crucial?

The market always has its ups and downs. When there is a recession, it is important to have a balance sheet that is protected to withstand the tough times. It is hard to understand the impact of recession in India but it is easy to understand the need to have your balance sheet managed better. 

The survey conducted by The Week emphasized the need for cash flow management. It stated that the urban population is saving and investing less, while allocating 59% of their income for their expenses. Only 31% of the respondents planned for retirement and the results are shocking as people were dependent on their insurance for their retirement spending. 

Further, people are heavily dependent on personal loans to make their ends meet post pandemic and this is merely because of lack of discipline in their financial plan. More of these red flags were highlighted by Mint in their survey.

The Future Ahead

The Indian economy is strong and taking on every other country along the way. Recently, we went past the United Kingdom and if we have to be a 30 Trillion Dollar Economy, then, we have to uplift the commoners to practice sustainable Financial Habits. 

With the help of a team of advisors who can guide them, they can easily start making smart decisions around their cash flow management starting with budgeting, goal planning, and even, with getting an insurance or loan that fits best for them. 

When fitting solutions find an individual, it reduces leakage of funds from their Life’s Balance Sheet.