You must have heard the term cash flow. However, some of you may not know for sure what cash flow is and its importance. In fact, cash flow plays an important role in personal and business finances. In this article, Jago wants to talk about cash flow and how you can have healthy finances.
Understanding Cash Flow
So, what is cash flow? If explained briefly and simply, cash flow is the amount of money that goes out of and into your bank account, be it a personal or business bank account, depending on the type of bank account you have.
The financial goal of every individual and business related to cash flow must be the same, which is to have a positive cash flow.
What is meant by positive cash flow?
Positive cash flow means that the amount of your income is bigger than the amount of your spending during a certain period of time.
You also need to know that positive cash flow, in business, is not the same as profit. Profit is obtained when the total income has been reduced by the total expenses incurred by the business. The result is what is called profit. But, positive cash flow is more about the ability of an individual or a business to sustain or operate on a daily basis.
Then, what are categorized as income and expenses? Examples of income are active income such as monthly salary, passive income such as renting out your house and income from investments such as selling mutual funds. For businesses, examples of income are issuing shares and obtaining loans from banks.
As for expenses, individual expenses may include paying monthly bills, installments and credit card bills, shopping for daily food and transportation needs. Business expenses may include paying employee salaries, paying off debt and paying for maintenance.
What causes negative cash flow?
On the other hand, cash flow can also be negative if expenses are greater than income. Spending money without careful planning and regular budgeting can cause negative cash flow and endanger financial health.
Positive Cash Flow for Healthy Finances
When the cash flow is positive, your mind and heart will be at ease. You don't have to worry about whether you can survive week after week or month after month. Likewise with those of you who run a business.
Cash flow is important to be understood properly because it helps you identify your sources of income and how you spend your money. Armed with this knowledge, you can take the right action to maintain a positive cash flow and in the long run achieve your financial goals.
The same goes for business. Cash flow is closely related to business continuity. You can predict whether you are running a successful business and project its growth.
In addition, cash flow is important in that it helps you understand the progress of your business operations and provides you with guidance on how much profit your business is making.
Smartly Manage Finances with Jago
To keep your cash flow positive, there are a few tips you can follow:
1. Evaluate expenses regularly
Evaluating expenses regularly is highly recommended to control finances. Don't let your expenses exceed your income, which will lead to negative cash flow.
By evaluating your expenses, you will know which expenses are really unnecessary, or how often you can have fun and enjoy self reward.
If you have an account at Bank Jago, you can use the Spend Analysis feature in the Jago application to monitor your monthly expenses regularly.
2. Prepare budget
Reflecting on the results of the expense evaluation, you can start budgeting for weekly or monthly routine expenses, which you can predict. You can determine how much it will cost for food needs, transportation needs, monthly bill payments, and so on.
With Jago, budgeting is easy and practical. You can create different Pockets to separate a number of different needs, then enter the budget for each Pocket.
Even better, you can also schedule automatic payments or transfers for any routine needs with the Plan Ahead feature so you don't forget.
3. Have both short-term and long-term savings
When budgeting, make sure you also allocate money to savings. At Bank Jago, you can choose a place to save the way you want.
For savings that is useful for meeting short-term financial goals, you can save money in a Saving Pocket or Locked Pocket.
Meanwhile, for long-term savings or investments, the Jago Deposit is available. You can open and withdraw it directly from the Jago application and it provides competitive interest rates.
Time to start regularly managing your personal or business finances the way you want to ensure that cash flow is always positive. Don't forget to use the features available in the Jago application to help you.