Master your cash flow without turning into a scrooge

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Tips, tools and strategies to help you master your cash flow management

For most people it is a boring topic and they rarely spend any time on it. However, it is impossible to build wealth without a basic level of cash flow management. The simple and undeniable formula for building wealth has always been: spend less than you earn and invest the difference in quality assets.

Chances are you know what you earn – but do you know how much you spend, and on what?

You cannot manage what you do not measure. For that reason alone, 90% of good cash flow management is simply about just “knowing” where your money is going.

If you don’t know how much you spend on general living expenses (food, utilities, clothing, entertainment, etc.), take 3-minutes to read the rest of this blog. I’ll show you how simple, empowering and pain-free good cash flow management can be.

It doesn’t have to mean you’re on bread and water

Cash flow management often creates connotation of running a tight budget, minimising expenses wherever possible and tracking every cent. But it shouldn’t and doesn’t have to be like that at all. Like everything in life, moderation is the key. There has to be some balance, and we all need to be able to enjoy life and the journey of building wealth. There’s no point living poor to die rich. I want to make that very clear. Good cash flow management will not necessarily mean that you have to dramatically trim back your lifestyle and its enjoyment.

Where does it all go?

The first step is finding out where all your money goes because it is very difficult to do any forward planning if you don’t know what your starting point is. The best way to do this is go over your last 3 months of transaction account and credit card statements and allocate your expenditure into half-dozen categories or so. This high level approach should be sufficient to give you a good handle on your expenditure levels.

There are two approaches you can take:

  • High level

As described above, this involves going through your statements and allocating each item into 5 categories:

  1. Financial commitments e.g. rent, mortgages, car lease, child support, etc.
  2. Utilities e.g. gas, electricity, rates, phone, water, internet, contents insurance, etc.
  3. Health & education e.g. school fees, health insurance, medical expense, child care, etc.
  4. Shopping & transport e.g. food, clothing, beauty, petrol, car maintenance, public transport, etc.
  5. Entertainment e.g. holidays, gifts, eating out, movies, coffees, etc.
  • More detailed

You can use the calculator below (see Tools section) and allocate each expenditure item into the spreadsheet or calculator.

If there have been any abnormal or extraordinary expenses (e.g. you have purchased a lot of new furniture because you moved into a new home) during this period and you do not expect they will reoccur, then you should not include these expenses for this analysis.

Once you have completed this analysis you should be able to calculate what you spend each month on average. You can then work out what your surplus investable cash flow is (i.e. income left over after paying for all expenses).


The Australian Government (ASIC) operates a website called MoneySmart and it contains a number of useful calculators including a budget planner. Click here to visit the budget planner page. It allows you to track your historic expenditure using a web-based calculator or you can download your own Excel spreadsheet. It is very easy to use and allows you to quickly analyse the data you enter (to create an annual budget).

We have our own budget tool as well – click here to download it (it accommodates more of a higher level analysis).

There are phone apps like “Pocketbook” which will make monitoring spending very easy. It downloads transactions from your bank accounts and allocates them into certain categories.

In addition, your bank might have a tool that is integrated with its online banking. For example, ANZ’s tool is called MoneyManager, NAB Money Tracker and CBA My Spend. These tools automatically analyse your spending habits and provide a good indication of where your money is going.

Four smart strategies to help you find a surplus (… or a larger surplus)

The goal of managing your money is to firstly allow you to know how much surplus income you have to invest (i.e. the amount left over after expenses). Secondly, once you know what surplus you have you will then have the confidence to plan when and how to invest your surplus cash flow.

What do you do if you don’t have a surplus and you are spending everything you earn? Or what do you do if you would like to boost your surplus? There are really only two things you can do; reduce expenses or increase your income.

Here are a few tips to do the former as painlessly as possible:

  • Save more tomorrow

What about saving money you don’t even have yet? That sounds relatively easy, right? You will never miss what you don’t have. This strategy involves you committing to save a certain percentage of your future pay rises and/or bonuses (or any unexpected income really). For example, if you expect to receive a pay rise in the near future you might decide to save 80% of the increased income (and spend 20% on living expenses).

  • Pick off the low-hanging fruit

This strategy involves identifying the top 2 to 4 most costly discretionary items you spend money on and reduce them by around 50%. For example, if you spend a lot of money on eating out – say $400 per week for example, you might decide to cut this back to $200 per week. That is still enough to enjoy one or two reasonable meals out each week so you won’t necessarily feel like you are on a “budget”. But the saving adds up to $10,400 per year which is more than enough to fund a $500,000 investment property at normalised interest rates of 7% p.a. You can still go out for dinner a few times a week and invest in property!

  • Eliminate the waste

This strategy involves looking for expenses that have no impact on your standard of living and eliminating them or cutting them back. An example of this from a client a few years ago was they worked out they were paying their gardener around $10,000 p.a. (had no idea it was this much). They enjoyed their garden but not that much. The client’s were very happy to halve this expense without it having any impact on their enjoyment. Look for these expenses and eliminate them.

  • Pay yourself first

If a spendaholic is trapped inside your body and you don’t trust yourself with surplus cash flow, pay yourself first. Contact your payroll department and ask them to transfer a fixed amount from each pay into a secret account that is out of sight and out of mind (i.e. no internet banking).

If you don’t like cutting expenses, there’s another solution

Another solution to finding a surplus, other than cutting expenses, is to earn more income. There are a few ways you can do this. You can invest in yourself and develop your career. As the saying goes; if you want more value become more valuable.

If you don’t have a surplus (or not a large enough surplus) then you will have to commit to cutting expenses or increasing income or suffer the consequences. The consequence might be that you never achieve a position of financial security or worse still, be able to fund a comparable retirement. So if you have no capacity to increase your income, you really only have one option – like it or not.

What are good cash flow habits?

Now that you have analysed your cash flow and spending habits you might be wondering what you should be doing ongoing. Do you have to wade through a shoe-box of receipts each month to track expenditure? That would be overkill (and unrealistic) for most people. Typically, the best practice is to review your annual expenditure every 12 to 18 months. That is, go through the above exercise of reviewing the last 3 months of spending and compare it to previous results. That will typically be enough to help people keep on track.

What can we help with?

Once you have completed this cash flow exercise and ascertained what your surplus income is, the next step is to decide how to invest your surplus. For most people there are plenty of options including repaying your home loan (if you have one), making additional contributions into super, deposit it into an offset account linked to an investment loan, borrowing to invest in property or shares, a regular investment into a diversified (index) share portfolio, accumulate cash savings and so on. This is where we come in. We work closely with clients on a regular basis to help them decide what they should do with their surplus cash flow to ensure they maximise their financial opportunities. Do not hesitate to reach out to us if you need some help.

Click here to contact us.