How to Become Cash Flow Positive

Cash flow is the lifeblood of your business. Without a steady cash flow, you could be forced to shut down in a matter of months. You might have a product or service that customers love and are willing to buy from you. However, if you don't have the cash in place to fund your company's growth and development, this could spell disaster.

Assess Your Monthly Income

Assessing your monthly income will give you an idea of how much money you bring in each month. This is a good starting point for creating a budget since your budget will be based on your income.

Use Net Income instead of Gross Income. Net income is your gross income minus all taxes and other deductions. It's the actual amount of money that goes into your bank account each month, so it's what you should use when calculating your monthly expenses.

Improve Your Income Sources

The first thing you must do to become cash flow positive is to improve your income sources. The easiest way to do this is to get a second job or start your own business. If you don't have the time or know-how to start a business, then working part-time at night or on weekends may be your best bet. Either way, you need to find a way to make more money.

You Can Improve Your Income by Understanding the Rule of 72

As you start to earn more, your financial priority should be to become cash-flow positive. The first step to becoming cash flow positive is understanding the Rule of 72. This rule states that in order to find the number of years required to double your money at a given interest rate, you just divide the interest rate into 72. For example: If you are able to get an 8% return on your investment, then it will take 9 years for your money to double (72/8 = 9).

In order to become cash-flow positive, you need to find an investment vehicle that will give you a positive return and will do so consistently year after year. You also need to understand how compounding works and how it can dramatically increase your wealth over time.

Improve Your Income by Settling Debts

You can also improve your income sources by selling your house; you can sell your house to a company that buys houses in cash or states we buy houses San Antonio TX. If you are cash flow positive, then it may be possible for you to sell your house and use the proceeds from the sale as extra money to pay off debt. You can also choose to rent out your home and downsize into a smaller place while you begin to make an income from your rental property. This will help you build equity in your home and allow you to use that equity as collateral for loans that will help you pay off even more debt.

Track Your Expenses to Create a Budget

If you're like most people, it may be a while since you've looked at your bank statements and credit card bills. So, before we jump into making a budget, let's look at what you've been spending money on over the last few months. This will provide a good starting point for your budget.

Gather all the statements from the past three months—bank and credit card statements. You might be surprised by how much you spend in categories like dining out and groceries. This is especially important if you haven't made a budget before because you can see exactly how much money you're spending and where it's going.

Create an Emergency Fund

Creating an emergency fund is an important step toward becoming cash flow positive. The purpose of an emergency fund is to help you prepare for the unexpected.

The smallest possible starting amount for an emergency fund is $1,000. You can increase the number if you want to, but it is a good place to start. The idea is to keep building this fund so that you have 3-6 months' worth of expenses saved up in case you get laid off or suffer a financial setback.

Create A Retirement Account

You should start saving for retirement as soon as possible because the earlier you start, the more time your money can grow. If you're just starting out and don't have much to save, don't worry – even small contributions will add up if you start early enough.

Get A 401K Retirement Plan

Many employers offer their workers a 401(k) plan, which allows employees to contribute pre-tax money toward their retirement. These plans are often matched, meaning that the employer contributes to the employee's retirement fund as well.

The primary benefit of a 401(k) is the fact that it allows you to take advantage of tax-free growth, meaning you don't have to pay taxes on the money until you withdraw it from the account. In addition, many people like 401(k)s because they allow for automatic deposits into your retirement fund. However, 401(k)s have limited investment options and high administrative costs.

Conclusion

Becoming cash flow positive is an important milestone for any business, but it's not always easy to reach. The first and most important step you can take is to figure out where your business stands now so you have a reference point going forward. Once you know that, you can begin taking steps to get there.

Guest Contributor: Hannah Boothe