What Is Cash Flow Planning?
In simple terms, cash flow refers to the inflow and outflow of money. It is a record of your income and expenses. Though this sounds simple, very few people actually take the time out to find out what comes in and what goes out of their hands each month

Cash flow planning refers to the process of identifying the major expenditures in future (both short-term and long-term) and making planned investments so that the required amount is accumulated within the required time frame.

Cash flow planning is the first thing that should be done prior to starting an investment exercise, because only then will you be in a position to know how your finances look like, and what is it that you can invest without causing a strain on yourself. It will also enable you to understand if a particular investment matches with your flow requirement.

So does it involve looking at future cash flows only? Not really. You should always do a cash flow for yourself as on date, and you will realize that you could have a potential savings amount within each month of your working life. This is the amount that you should look at saving for meeting your financial goals. The best way of doing this is to have a personal budget.

Why is cash flow planning important?

Cash flow plans are commonly used by business houses. Without a viable cash flow plan, a company could easily spend more than its revenue, putting it in peril. Unfortunately, most of us do not realise that a cash flow plan is as important for people like us as well. The principles that apply to corporate finance and to our personal lives are largely the same.

There has never been a bigger need than today for families and individuals to work out cash flow plans. Without proper cash flow planning one could easily get caught in the debt trap. Of course, it goes without saying that creating a plan is not enough. One also needs to implement the plan, besides bringing about a change in the spending habits.

Cash flow plan brings you face-to-face with what you should ideally be saving, and investing in a systematic and regular manner, and what would it mean to you to withdraw from your portfolio after a couple of years. It brings down in numbers what your financial future has in store for you, and gives a crystal clear view (as much as is possible with inflation and the interest rate scenario).