In the previous article , we have seen how to calculate your net worth. Lets us now get to know how to improve your net worth. One of the tool that can be used to improve your net worth is your cash flow statement.
Cashflow statement is nothing but a measure of how much money is coming in and how much money is being spent by you.Lets start creating your cashflow statement by doing the following steps.
1. List down all your incomes. Identify all your source of incomes like monthly income,dividends,rental income and other sources.List down the monthly income and also list down the annual estimate of your income from each source.
2.List down all your expenses which may include credit card payments,rent/emi,grocery expenses,children's fees.
3. Calculate your cash flow by
Cashflow = Income - Expenses
After arriving at your cash flow, check if the cashflow is positive or negative. Lets see how to read/analyse cashflow statement.
4. Cashflow analysis
a) Look out ways to increase your income. Check if your hobby or your skill set can generate a significant income.
b) Check if you could reduce your expenses. Classify the expenses as necessary and unessential ones. Try to reduce the unessential expenses if possible.
c) Try to reduce your debt component and try to reduce taxes by investing in tax instruments.
Cashflow is directly proportional to the net worth and hence start creating your monthly cash flow statement and track them regularly to increase your net worth which would in term let you give you leeway for investments.
Learn More : What are Fixed Maturity Plans?