Sunday, May 20, 2007

Saving and Spending

One should always think on investing if he has more money left after spending for his needs. Actually, what does that mean? His 'cash flow' must be positive.

Cash flow is the net amount with you after you spend for your expenses from your earnings. Roughly, calculate it this way,

How much are you getting every month (if you are a salaried person, its your salary)? - A
How much you are spending every month (It includes everything like food, clothing and every other needs) - B

Strictly speaking, (A-B) is your cash flow. Simple, isn't it?

Apart from paying for your expenses, you should also have to save for the future expenses. Also, there is a high possiblity that you have some financial goals in your life, like,

1. Buying a car, house, etc.,
2. Do marraige for you sister or son or daughter.
3. Financially free over the years to come.
4. Plan to retire soon...
5. Anything that the money can get you, that you can think of!

For all the above said things, you will be eagerly waiting for increasing your 'cash flow'.

To increase the cash flow, you can either increase your monthly income or decrease your extra expense. Note here, its "extra expense". You can have numerous ways to increase your monthly income, doing more work for incentives and/or creating a new side business.

How to cut short your expenses? First of all, have a pocket diary or something of that sort, to have all your expenses accounted. Anyway, you need to have this for finding the value of B, that was said before in cash flow. Then find, which of them is extra expense. you will be able to find it easily. Of course, whenever need/necessity comes you should have to spend for it.

You will be thinking where to put the 'extra money' to get higher returns, so that, it will be helpful in fulfilling your financial goals/needs. This will be the next post.

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