Cash Flow is King

Date: 02 August 2022

Bills and prices continue to rise while incomes freeze or drop, as we struggle through the cost-of-living crisis. And with necessities now taking up more than half of disposable income for the lower income households, cash flow is a serious issue.

As always, we want to support you through these challenging times, so we’ve created a two-part blog series to help you assess, manage, and control your budget as best as possible.

In the first article, you’ll learn why cash flow is important and how to manage your budget better to take control of your financial wellbeing.


What does cash flow mean for individuals?

Cash flow is a term we often associate with businesses, but it relates to each of us as individuals, couples and families just as much.

In the simplest terms, your personal cash flow refers to how much money flows in and out of your bank account over a specific time, like a month.

Put very simply, your cash flow is your monthly income minus your spending for that month.

Your cash “inflow” is any money that comes into your account over the course of an average month, like your wages, money you earn from selling items, or interest and dividends from investments or savings accounts.

Your cash “outflow” is the money you spend on your rent or mortgage, bills, food, entertainment, or anything else you pay for.


Why is cash flow important

Right now, we’re living through the highest inflation rates in forty years. Prices keep going up, yet wages are staying the same or going down.

Understanding your cash flow is important, because it shows whether you’re spending within your means and helps to make changes to improve your financial wellbeing, if not.

You can work out your net cash flow by subtracting your cash outflow (what you spent) from your cash inflow (what you earned).

If there’s money left over, you have a positive net cash flow. If it’s a minus number, you’re in a negative cash flow and spending more than you have.


What are the risks of negative cash flow

When we spend more than we budget for, we risk falling into debt and experiencing associated issues like stress, anxiety, and depression.

So, creating a household budget and regularly evaluating your cash flow is a crucial part of your financial wellbeing, as it allows you to identify any unnecessary spending and take steps to get back on track.


How to create your budget and what to include

Now that we’ve established what cash flow is, it’s time to take control of your financial wellbeing and ease the burden on you and your loved ones. You can do this by creating a budget planner, which will determine your monthly incomings and outgoings and help you stick to it.

In order to create an accurate budget and a reflection of your current financial situation, it is key to take into consideration all your incomings and outgoings, as well as when these amounts are coming in or going out of your account.

Here’s a checklist of what you could include:

Incomings (cash inflow):

•    Your wages or pension
•    Any other income you receive regularly (e.g. child benefit, additional work)
•    Money from the sale of pre-loved items
•    Interest or dividend payments

Outgoings (cash outflow):

•    Mortgage or rent payments
•    Utility bills
•    Council tax
•    Car payments
•    Groceries
•    Subscriptions and memberships (e.g. Spotify, gym)
•    Broadband and TV
•    Mobile phone
•    Entertainment and socialising (e.g. meals, nights out, alcohol)
•    Clothes

Once you’ve got all this information recorded, you should have a clearer picture of your current financial situation. It will help you to control spending whilst maximising your budget, as well as coming up with a plan to live comfortably without financial anxieties.


Where to get further support with your financial wellbeing

GMB Credit Union always focuses on delivering the best possible outcomes for members over the longer period. We are committed to helping members maintain control of their money rather than struggling and worrying which can lead to poor decision making – the impact of which can last far longer than the current economic storm.

Borrowing money responsibly can help smooth out the rising cost of living and get you back on track to achieve a brighter financial future. Rest assured, we only loan what you can afford to pay back and you only pay interest on your decreasing loan balance, not the full amount you borrowed.

So, take control of your financial wellbeing today and remember – you are not alone. We are here to support you and maintaining a dialogue with your Credit Union is key in order to arrange your finances to the best of your ability during these uncertain times.

See how we could help you here. 


Online budget planner

Need a little more help planning your budget?

Discover this FREE online budget planner here. It will help you evaluate your current financial situation and stay in control of your money.