What is Personal Cash Flow Planning?
Personal Cash Flow Planning takes into consideration your income, expenses, emergency fund, your retirement and your short term and long-term goals.
It helps you manage your day-to-day cash flow so that you can also meet these other financial obligations.
Understanding how cash flows in and out of your bank account is very important to avoid indulging in things that do not meet your financial requirements.
What is Personal Budgeting?
Personal budgeting is the process of determining your expected income and how you anticipate it will be used to run your household activities.
Often categories and sub-categories of expenses are created to help you keep track of your money.
Personal budgets are typically developed to assist individuals or families in controlling their spending.
A budget can help individuals gain control of their finances and make it simpler to avoid overspending, which should motivate saving habits.
People who manage their finances are less likely to incur significant debts, enjoy secure retirements, and be better prepared for unexpected events.
Cash flow planning vs. Budgeting
Cash flow planning aims to create efficiency and surplus within your current income while budgeting aims to keep you confined to your income and not overspend.
A cash flow strategy takes a more holistic approach, not just your short-term financial responsibility but also your long-term goals and the money required to fund these goals.
A budget is more useful on a micro-level. It is very effective for short-term projects that have a start and an end date; examples would include such things as a home renovation or planning a vacation.
If you don’t have a cash flow plan, it’s time to consider having one done.
What Are the Differences between Cash Flow Planning and Budgeting?
Usefulness
Personal cash flow planning aims to create efficiency within your current income by decreasing money leakages caused from interest payments and impulse shopping.
Overall this will increase your current cash flow.
On the other hand, personal budgeting gives you a spending plan that becomes a pillar towards where you want to be financially.
The budget will give you spending limits, such as the amount you are supposed to spend on clothing, transport, etc.
This objective is to help you avoid overspending, which may lead to debts and negative cash flow. This biggest challenge to a budget is people’s lack of self-control and motivation to stay on a budget for the long term.
Timing
Personal cash flow planning is an anticipation of what you will have in the account within a given time, while personal budgeting is regulated by the money you have received in the past and will continue to receive in the future.
Management
A personal budgeting report enables you to identify any areas of under-performance. Whatever you want to achieve in your household is usually stated in your budgeting estimates, so a budget report can examine how close you are toward reaching such goals.
Personal cash flow planning does not address how you work towards achieving your goals; rather, it merely shows money movement in and out of your account.
Therefore, you will still need to determine how you want the cash to be used in meeting not just your current financial obligations but also meet both your short-term and long-term goals.
Conclusion
The individual’s ability to generate cash flow is a crucial stage in maintaining financial stability and longevity. In short, a budget can help you with micro-planning or short-term projects and help you stay on top of your finances and not overspend.
Cash flow planning on the other hand is more sustainable because it aids in helping you achieve both your short-term and long-term goals while focusing on a positive cash flow.
If you need a hand with this, you might also want to consider the option of consulting with an experienced financial advisor.
