One of the steps to help you build a strong financial foundation is to do things that will improve your cash flow — things like starting a budget, reducing your expenses, and making more money. To improving your cash flow all you have to do is follow this one rule: More In Less Out (MILO).
But before we continue, I want to point out the subtle difference. The concept of “spend less than you earn” is good, but you can only cut so much expenses. On the other hand, “earn more than you spend” is much better because it puts you in a different mindset — it’s not about what you can cut next, it’s all about what you can do next to earn more money.
What is “More In Less Out” (MILO)? It simply means that you have to make more than you spend. Let’s expand on this a little bit by showing you three types of cash flow situations:
That’s simple right? To build wealth, you can’t spend more than you make (accumulating debt), or even spend as much as you make (living paycheck to paycheck) — you have to make more than you spend!
With that realization, your first priority is to focus on improving you cash flow. To do so, there are three basic steps that you can follow:
Starting a budget is all about tracking performance and building accountability — things tend to get better when you monitor them. The main goal of budgeting is about tracking your expenses and income to make sure you have more of the latter. This makes budgeting a perfect fit for cash flow improvement.
To start budgeting today, I suggest that you read How to Create A Budget. It has all the steps and resources you need to get you started.
Cutting your expenses is one of the quickest ways to shape up your finance. You can use tools like YNAB, Mint.com, or even Personal Capital to track your expenses. Once you better understand your spending pattern, you can apply techniques discussed in the Frugalist Expense Reduction Guide to methodically reduce your expenses.
For more ideas, you can also check out How to Save Money and Cut Spending: 93 Ideas at BeingFrugal.net.
Unfortunately, you can only reduce your expense so much, as such it’s also important for you to look for ways to increase your income. To help you get started, I’ve written Extra Income Guide: How To Earn More Money, a comprehensive guide to help you make more money and increase your income.
For more ideas, you can also consult the 40+ Alternative Income Ideas and Resources.
As I said before, this is simple but not easy. It will take a lot of time and effort on your part to go through these steps to improve your cash flow. The important thing is to get started and do what you can now to spend less and earn more. Once you have this going, move on to the next step and start paying down your debt as part of your expense reduction strategy.