It may sound simple, but the antidote to a problem cash flow is:

1. Know how much your income is

2. Know how much you spend

3. Know what you need to save to reach your financial and life goals.

This list suggests a few items for attention when thinking of cash flow management:

• Visualise what you want to achieve. You need a goal to work towards, whether it is reducing your home loan by a certain amount before a certain date, going on an overseas holiday in 12 months time, or saving for your children’s private school fees.  Whatever your goals are, you need to write them down -and they should be quantified in terms of cost and timeframe.  It sometimes helps to break your goals into time periods, such as: Next 12 months, 1 – 5 years, 5 – 10 years, 10 years plus.
• Work out your income -that is your after-tax salary (not including annual bonuses -if it is not guaranteed, you should not rely on it to meet your goals).  If you get paid fortnightly, multiply your normal net pay by 26 to get an annual figure.  If you get paid weekly, multiply by 52, or monthly multiply by 12 to get your annual net income. Work out your expenses.  This process can be a bit arduous.  Some quick tips are:
• Keep a spending diary for 3 months.  Write down where all your money is spent.  This can then be multiplied by 4 to work out what you spend for a full year.  Make sure any annual bills you normally spend, but have not fallen in the 3 months measured are added to the annual figure.
• Another option is to gather together your bank and credit card statements for the last 3 months.  Use these to add up where all your money was spent, then multiply the amount by 4 to get an annual figure.  Make a list of annual bills or gifts that are not included, look up your last amount spent on these and add this to the annual figure.  This is what you spend in a year.
• You might like to visit the Federal Government website, www.moneysmart.gov.au/managing-my-money/budgeting for some extra tips and templates to help with this process.

Now have a look at the annual income and the annual spending amounts you have worked out. Is the income amount more than your spending deficit?  If so, you have the ability to save.  The next question is whether those savings will allow you to reach the goals you wrote down earlier.  If not, then you may need to go back and have a look at your spending levels to identify areas where you can save.

If your spending is more than your income, then you are living beyond your means. This can only lead to financial trouble in the future.  If this is the case, you need to immediately review your spending and also consider if there are ways you can increase your income (getting more credit is not the answer).

Sometimes your goals may seem complex, and will often compete with each other for your savings dollar.  This is when it might be beneficial to speak to a professional financial adviser to get some guidance on strategies to achieve your goals.  Advisers can also provide guidance on the best way in which to structure your income to meet your goals, and can also guide you as to the most appropriate ways in which to invest your savings for your various goals.

Wealth  cannot be ‘magically’ created.  It is normally the product of discipline, wise financial choices, and a focus on the long term financial outcomes.  Without cash flow management, real wealth can prove elusive.