Cash flow analysis and investments accordingly

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Often investors have no idea how much to invest on a regular basis and end up putting in a random amount – a common practice. In doing so, they do not take into account the current and future cash flows in their hands and the investments are not in line with their financial objectives. Moreover, over time, the majority of investors fail to increase their investment amount in sync with increasing cash inflows. Such behavior can be dangerous and lead to undesirable financial consequences.

The amount of investment should be sustainable and based on your cash flow. Discipline and consistency in investing are as important as managing your cash flow. To put things in order, you have to understand the basics, that is, know your cash flow by regularly analyzing your income and expenses. This helps determine how much you can invest and how likely it is to increase the amount without affecting your daily expenses. This, in turn, makes your investments more disciplined, optimal and thus helps to achieve the financial goals within the stipulated mandate. Otherwise, although you invest, the amount might not be enough to produce the desired results.

Here is a quick guide that can help you with cash flow analysis.

a) Budgeting: This is one of the most basic yet very essential aspects of financial planning. You have to have a valuation of assets and liabilities. In other words, it is always a good idea to be aware of your overall income and expected expenses which may include your house rent, transport costs, monthly ration, children’s school fees, medical expenses, various EMI loans, among others. Know-how about monthly expenses allows you to obtain an advance estimate of what can be saved at the end of the month. Also, it can make aware of discretionary spending that takes up a large portion of the wallet.

b) Existing investment portfolio: A careful review of your existing investment lets you know how much money is already invested in various investment options on a monthly basis. Additionally, knowing your existing portfolio lets you know which investments are maturing as well as which ones offer regular payouts in the form of dividends, rental income, or interest. All of these are useful for understanding not only your current but also future cash flows.

c) Loan management: Knowing your existing outflows as loan repayments gives you a good idea of ​​what liabilities you cannot eliminate. Although paying off a loan is a long and tedious process, managing it with a focus on prepayment can help you get rid of financial responsibility faster. In a rising interest rate scenario like today, this is crucial as higher EMIs will negatively impact your cash flow. Once your loan is repaid, you can increase your investments.

Each of the financial exercises mentioned above ensures clarity in managing finances and makes you self-sufficient. Plus, it helps increase your investments in a planned way as cash flow improves. As a result, the whole investment experience will gradually become progressive, effective, efficient and disciplined.

Asset allocation strategy

While investing, it is advisable to respect the asset allocation. Asset allocation is simply a strategy to diversify your risk and exposure across asset classes – stocks, debt, gold, real estate and others based on your financial goals. Mutual funds today offer several schemes that invest in different asset classes and thus provide you with the required asset allocation strategy. If you are unsure how to go about asset allocation, you can consult a financial advisor or opt for asset allocation or multi-asset class programs that will help you diversify your investments across multiple asset classes. assets.

Conclusion

Careful cash flow management is essential for every individual before starting investments. It ensures sustainability and avoids any sudden stoppage of the investment. However, it’s much more important to review your cash flow every year and analyze it closely to ensure your investment stays on track. This allows you to stay up to date with your financial situation and, therefore, allows you to make any necessary changes to your investments. Finally, always remember that your investment should increase with each increase in income, because we want to defeat the demon called inflation.

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