Time to Manage Your Cash Flow
In light of everything that’s going on in the world right now, I thought there was no better time to write about managing your cash flow. Hundreds of thousands of Canadians have lost their jobs and income over the last few weeks, and they’re scrambling. This is not good. And from what I’m seeing, I think this is going to be a wakeup call for a lot of people. I wish things didn’t have to be this way, but this should be a learning lesson that money is not infinite. It comes and goes. But when it comes, it’s important to manage the crap out of it, and set yourself up for anything that may come.
I find it fascinating (and also scary) that a number of Canadians couldn’t financially support themselves until the end of the month. The amount of calls that the big five banks have received in regard to mortgage deferrals is incredible. Almost 300,000 as of today (April 4, 2020). And the number of people who couldn’t pay their rent on April 1 was through the roof (I’m sure).
However, regardless of where everyone is right now in their financial situation, it’s important to take a step back, look at what you do have, and stretch your dollars as far as you possibly can. Here’s a step by step breakdown on how to approach the next few months. More on managing cash flow in weeks to come, but here’s where to start.
- Sit down and organize your finances. Take a look at your deposit and investment accounts (or look at your Net Worth Tracker if you have one), and understand which accounts are easy to take money from, and which ones aren’t worth touching right now. Write down the total amount of money that you have in all of these accounts.
- Figure out how much income you have coming in every month. If you had to apply for EI, or will be applying to any government assistance programs, write down these amounts. If you have other income from other sources, include those as well. I don’t care if it’s a few dollars here and there – every dollar counts.
- Print out the last 3-6 months of your credit and debit statements and add up the averages in each category that applies to your spending. Figure out what you spend on a monthly basis. Write it down somewhere.
- Fixed Expenses don’t change on a monthly basis (rent/mortgage, insurance premiums, bank fees, etc).
- Variable Expenses change every month (grocery bills, dining out, utility bills, etc).
- Irregular Expenses are those expenses that happen infrequently (holidays, vacations, car maintenance, annual membership fees, etc).
- Analyze. On a monthly average, are you spending more than you currently make? If you are, it means that you have some serious cutting back to do. You have to rework your numbers and completely change your lifestyle around for the time being (and maybe for a little while after that if you didn’t have an emergency account). On top of that, once you have your monthly expenses figured out, does the money in your accounts from Step 1 cover those expenses for the next 3-6 months? Example: if you spend $3000/month on average on everything, do you have $9000-$18,000 sitting somewhere that you can live off of?
Just remember that what we are going through is not permanent. There are going to be sunnier days, and hopefully, we’ve all taken something away from this. There are lessons to be learned, and mindsets to shift. There is no better time than now to actively start learning about personal finance because of how important of a role that it plays in our society.
If you're interested in learning more, please take a look at our website and find some upcoming webinars. www.enrichedacademy.com