It’s not exactly a shocker that having a healthy amount of cash flow makes life much more enjoyable. When there’s enough space between what comes in and what goes out, you worry less about contingencies and coupon cutting.
And while it’s nice not to think about cash flow, you should — at least a little. The key to worrying less about money is to put in place automated savings systems that fill your various cash flow buckets.
Go with the flow
The first area to focus on is your lifestyle cash flow. For most people, that’s income from a job or business, offset by living expenses. Ideally, you want to preserve at least 15% of what you bring in each month.
First off, you should use some of that excess to send automated transfers to an emergency fund. Keep the spigot flowing until you have six months of reserve income, in case of a job loss or other disruptions.
If you have zero saved for emergencies today, simply start saving today — you’ll be in a better position whether or not you get to your target amount before something goes awry.
One source of cash flow that many don’t consider is insurance, mainly because people hate paying premiums for something that might not happen. Including me.
When really bad things happen — like your car getting totaled, the house burning down, or a primary earner passing away — insurance steps in and gives you the cash flow to cover the catastrophe. Ultimately, it’s worth the price.
Cash back to the future
All of the above can be considered cash for the twists and turns of living day-to-day life. Make sure you plan for those needs first, and automate the savings as much as possible.
Next, it’s time to push cash into growth vehicles for your future. Investments and retirement accounts should also be funded through automated transfers that take the thinking (and the spending) out of the equation.
And what happens when you get a windfall of cash? The urge to treat yo’ self is as real as the fact that you should probably invest it. Splitting the difference and doing half of both is likely the sanest move.
How to Manage Cash, Your Most Overlooked Asset (Kiplingers)
