How to Manage Your Personal Cash Flow

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By Madhupam Krishna


How much time do you spend on managing your personal cash flow in your overall financial planning ? I bet very less; most of the time is probably spent in digging through various reports on which investment avenues are good , how much will they return and how to invest in them. While investing your hard earned money is important, generating that money intelligently is equally important as well.

And that is what is referred to as personal cash flow management. As the words indicate, cash flow refers to money coming in, which is your income and money going out, which are your expenses. Ensuring that you are living within your means is one of the most challenging tasks for investors today.

Managing One’s Cash Flow

This is easier said than done. It is boring, takes precious time that one could put elsewhere and is unimportant.  But wait.

If this were so unimportant, my client Mr Dalvi (name changed) would not be at his retirement stage, and still spending 120% of what he earns today. You heard that right – many people withdraw from their savings to spend without even knowing about it. Now that is an absolute disaster especially when you are hanging up your boots.

At an early age in life, you could be more prone to such erroneous ways of life. But this is not sustainable over a long period of time. One day your personal net worth will dry up and your income expense statement will become next to impossible to manage.

Is there a solution ? Yes, fortunately there is if you are willing to devote some time on it.

Begin by first understanding the components of your cash flow.


First comes the income. Income across the household is something that will grow at its own pace. An individual cannot generate a massive increase in his income – for those who fall in this category, I’d like you to be my employer!


Next come the expenses. This is the money going out, to which we referred earlier. Expenses are generally classified as fixed expenses and discretionary expenses.

Fixed expenses or non-discretionary expenses are your mandatory expenses each month – they could be groceries, education for kids, fuel, rent, utility bills and other mandatory heads of spend. You have to incur fixed expenses each month to live your life. These cannot be done away with.

Discretionary expenses are lifestyle expenses that you should curb to the best of your abilities. Dining out, movies, club memberships, extravagant shopping will increase your outflow and make your finances lopsided. The best way to save money around the discretionary expenses is to develop a vigilant attitude toward cutting costs, no matter how small.

The best, successful and intelligent investors are those who control their discretionary expenses. Trust me, this is one thing that can make or break the financial path you are taking to your future.

Also don’t forget that you must first project your expenses before you incur them. Otherwise you would not be tracking expenses against a baseline. Most of us are guilty of not doing that.


Your income minus expense is what is left for you each month. This is your savings, which should be invested for your future. Many investors keep their previous savings and current income at one place (bank account) so they can never track which funds they are spending.

A significant amount of your time needs to be spent on ensuring that your income minus expense is such that you are left with some surplus each month which you can channel into savings. Now savings is all about picking the right products and investing in them in the right way. If you do this right, with time you will have grown your personal net worth.

Ensure you are saving at least 20% – 25% of your net take home each month. It’s a pretty simple calculation that you can do in your mind to understand this so you don’t have to necessarily do this using tools and sheets.

To recap…

  1. Know where all your income is coming from. Forecast income.
  2. Track fixed and discretionary expenses. Forecast expenses.
  3. Cut down the discretionary expenses.
  4. Use budgeting tools/sheets to monitor your ‘net cash flow status’.
  5. Try maximising your surplus each month to channel them into savings for the future.
  6. Keep an emergency fund to ensure you do not disrupt your cash flow should an emergency arise.

Overall, the you need to be conscious of how much money you spend and why. If you cannot live within your means, you will not be able to generate the surplus money needed each month to invest for your future financial goals. And if you cannot do that, you will not be able to meet your aspirations in life. It’s a choice you have to make now.

Source: | All views, thoughts and opinions expressed belong solely to the author. 

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About Author

Madhupam Krishna

Madhupam Krishna

Madhupam Krishna is a SEBI Registered Investment Adviser (RIA) with over 15 years of experience in delivering personal finance advice and services. He founded the fee-only firm The Wealth Wisher, which delivers customised, client-focused investment advice online using the latest technology. View Profile

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