7 ways to improve your personal cash flow

The term “cash flow” is common in business, but the concept has implications for your personal finances too. Cash flow, or the money going into and out of your accounts each month, is a useful metric for understanding your financial health.

When you spend more than you make, your cash flow is negative. When you spend less than you make, you have a positive cash flow and can save money over time.

If you’re having a hard time getting a handle on the movement of money into and out of your accounts, you’re in the right place. Continue reading for seven ways to improve your personal cash flow.

Your personal cash flow is the movement of money into and out of your accounts, typically on a monthly basis. All of your net income — including paychecks, investment income, side hustle income, rental income, and any other money you receive — makes up your cash inflow. Meanwhile, your bills, debt payments, and discretionary spending make up your outflow.

A positive cash flow means you’re making more than you spend; in other words, your inflow is higher than your outflow. A negative cash flow means you spend more than you make.

Understanding your cash flow is a helpful measure of your financial health. If your cash flow is positive every month, you can save money, invest, and make progress toward financial goals such as buying a house, going on vacation, or retiring comfortably.

On the other hand, if your cash flow is negative, you could end up in serious debt. Plus, bleeding money every month is stressful. Not only does it mean you’re falling behind on your goals, but you may also be scrambling to make ends meet.

You can calculate your cash flow by subtracting your monthly expenses from your net monthly income. If your income and expenses look different each month, you can get a more accurate idea of your monthly cash flow by averaging multiple months of income and expenses.

If the thought of sifting through all your financial statements and calculating cash flow every month seems like a lot of work, don’t worry. You can rely on simple — and often free — online tools to do it for you.

For instance, My Money from Yahoo Finance allows you to connect all of your financial accounts, then automatically categorize expenses and calculate your cash flow on a monthly basis. Once you set up your account, your work is done. Want to give it a try? Sign up for free here.

If your cash flow isn’t where you want it to be, you can improve it by increasing your income or reducing your expenses. The following strategies can help:

The first step in improving your personal cash flow is to understand where your money goes after landing in your account. Start by combing through credit card and bank statements from the past few months. Figure out how much you tend to spend on essential expenses and discretionary spending, then use these targets to create a budget.

Remember, your budget needs to reflect your income. If you earn $4,000 in net monthly income, your expenses (including discretionary spending and savings goals) should add up to $4,000. If your expenses are higher than your income, that’s a sign your cash flow is negative, and you’ll need to make some adjustments.

Your budget will fluctuate as your income, expenses, and goals change. If your priority is to increase your cash flow, try combing through your budget for unnecessary spending.

For example, if you’re paying for two streaming services but only watch one, cancel the one you don’t use. Similarly, if you prefer working out at home rather than driving to the gym, stop paying for your membership.

Limiting your discretionary spending is one thing, but you can also improve your cash flow by saving money on essentials. There may be less wiggle room to cut costs here, but see what you can do with the following tips:

Groceries: Make a list before heading to the store, and choose store-brand over name-brand products. Try choosing more whole, unprepared foods to cook yourself instead of buying prepared and processed options.
Utilities: Negotiate your bills to bring costs down, and see if you can switch to a cheaper phone plan. You can also lower utility bills by switching to energy-saving devices and fixtures, like smart thermostats and water-saving shower heads.
Housing: Move to a less expensive area, get a roommate to cover part of your mortgage, or rent out your home when you travel.
Transportation: Reconsider how many vehicles you need for your household, and if it makes sense, sell one. Take public transportation, carpool, and bike when possible. Finally, compare car insurance policies to make sure you’re getting the best deal possible.
Clothing: Instead of buying new outfits for special events, try a clothing rental service instead. If you want to buy something, shop at consignment shops and secondhand marketplaces first.

An emergency fund is an essential cushion for anyone, especially those trying to improve their monthly cash flow.

An emergency fund is a pile of money you set aside for hard times, with the assumption you won’t touch it unless you truly need it. For example, you might use the funds when your furnace breaks or you need to book a last-minute flight for a family emergency.

Having an emergency fund means you can cover unexpected costs without going into debt, which can be a major drain on your cash flow. Experts generally recommend saving at least three to six months’ worth of essential expenses in your emergency fund. Keep this money in a high-yield savings account so it’s easily accessible (and earns interest while it’s sitting there).

Depending on your debt balance and interest rates, this monthly expense can take a major toll on your cash flow.

To improve your cash flow, focus your efforts on paying off high-interest debt, like credit cards, first. The higher the interest rate, the more you’ll end up paying in the long run — so it’s best to get rid of this debt as soon as possible.

You can also consider a debt consolidation loan, which allows you to pay off several loans at once, consolidating your debt into a single monthly payment. If you can qualify for a low enough rate on a debt consolidation loan, this strategy can help you pay off debt faster (and pay less interest along the way).

After cutting your costs as much as possible, you can continue to improve your cash flow by increasing your income with one of the following strategies:

Negotiate a raise: If you think there’s room to earn more at your current job, pursue a raise with your boss. Research what comparable roles are paying and get clear on what your responsibilities, contributions, and achievements are worth.
Look for a new job: If you can’t get a raise at your current job — or your negotiations don’t go as planned — you can look for a new job that pays more. You can even bring a job offer to your current employer to see if they’ll budge on your salary.
Start a side hustle: Side hustles are a great way to increase your earning potential, allowing you to explore a different skillset or industry outside of your day job. There are endless side gig options, such as tutoring, freelance writing, or pet sitting.

Regardless of how much you earn, automating your savings can help you improve your cash flow. When you automate your savings, you’re essentially paying yourself first. This approach means you prioritize your long-term goals and security (and a positive cash flow), even if it means spending less now.

To automate your savings, set up a recurring transfer from your checking to your savings account. Even if you only transfer a small amount to start, it’s building the habit that matters.