Difference between Increase Income vs Increase Cash Flow

Johnny Marasigan was happy. It was pay day. 2 weeks before that his boss told him his salary had increased due to his exceptional performance in his department and tenure in the company that is on going for 5 years. His Salary of ₱25,000 became ₱30,000. "Finally!" he says in relief, "I can finally save money!" as he could not save money in his previous salary because of a mix of expenses and lifestyle. His spending habits would equate the amount of his previous salary. His income increased, yet, after a week, he is almost out of money and can't save just like his previous salary.

What do you think was wrong?
The simple answer: As his salary increased, his lifestyle also increased along with it. Johnny Marasigan decided to go clubbing every night with friends and buy branded clothes, confident that he still would have savings from his new found lifestyle. Yet, here he is still in the same situation before.

A lot of people would assume an increase in income is also an increase in cash flow, but those two are quite different.

What's the difference between Increase Income and Increase Cash Flow?

The simple difference between the two is that an Increase Income only involves your income and not really factoring your expenses and spending habit.

While the simple formula for Cash Flow is Income - Expenses = Cash Flow. Your spending habits, lifestyle, and expenses are involved in the formula to determine the amount of money that is left to save.

How to Increase Cash Flow?

There are five things I can tell you that would be of help:

1 Lessen Your Expenses and Lifestyle
This one is obvious but not too obvious apparently. For example, if you are paying 2,000 pesos for your internet service and you are just using internet for facebook and emails, you might consider getting a lower price plan. Most internet service providers offer 990 plan. For your lifestyle, you have to ask if you really need these things or find a cheaper alternative to what you want. Why buy an expensive white T-shirt when you can just buy one for 150 pesos in department stores.

2 Increase Your Income
As Johnny Marasigan did (minus the expensive lifestyle), he increased his income through rewards of his hard work and generally being a good and loyal employee to his company. If you can't see yourself increasing your cash flow any time soon in your company, get a sideline or part-time job to go above your expenses. A combination of lessening your expenses and lifestyle and and increased income will give you the savings you desire.

3 Pay off Your Debt
For those who have existing debts whether friends or company, it is better to pay your debt before considering saving a lot of money. Interests charges of these debt could lower your chances of a positive cash flow. try also consolidating debts like getting a personal loan to pay off your credit card debt. Personal loans have lower interest rates compared to credit card interest.

4 Track Your Income and Expenses
This is something that is needed but a lot of people seem to forget. It helps you monitor if your cash flow has increased or decreased so that you can be aware of your action plan for your next step in bringing it to the positive. You can make an excel file or a smartphone app that specifically does this. There are a lot of those in google play store.

5 Discipline Yourself
This is the most important part of increasing your cash flow. You can't exactly do anything about numbers 1-4 if you don't have the discipline to take action and avoid necessary liabilities in your wallet. Have a Whypower for saving. Write down your reasons in saving. Meditate on yourself. Pray to God Anything that can help your mental state (by anything, I mean anything not illegal or unethical).

Any problems with your cash flow? Try attending our free Building Your Future Orientation. Just comment below or send me a message in my facebook account.