September 24, 2021

The following article is part of Consumer Council of Fiji’s (CCoF) Project Financial Resilient Fijians (Project FRF) which is being implemented through partnership with United Nations Capital Development Fund’s (UNCDF) Pacific Insurance and Climate Adaptation Programme (PICAP). The project aims to help Fijian consumers become more financially resilient in the face of natural perils.

In last week’s edition, we looked at one of the basic steps consumers should take towards financial resilience – setting a shared family vision. A family vision essentially answers the question, “What is the money for?” Or, put another way, “What is the purpose of our money?” Once consumers understand what a family vision is, the next step is to manage the family’s cash flow in order to do budgeting.

Most households have a limited amount of money coming in and that is why an understanding of cash flow is essential for household budgeting and knowing where your money is going. Household cash flow is simply the movement of money; whether coming in or going out of a household. Cash coming in to the household is the money that is received through regular income or received by way of an assistance or remittance. There is usually a finite amount of cash so households must ensure their expenses do not exceed income or simply put, they should have a positive cash flow. While often consumers may not be able to change their level income, they can definitely strive to manage their expenses. In order to do this, consumers need to first understand the types of expenses they have. Cash used for expenses can be broken down into non-discretionary or discretionary spending:

• Non-discretionary spending is on those items that you need to survive. Instances of non-discretionary spending includes rent, mortgage payments, electricity, fuel for your car and car payments.

• Discretionary spending is the money you are spending on entertainment, communication, restaurants, food not necessary to survive, vacations, clothing in excess of the minimum and other luxury items.

Once you understand and classify the types of expenses you have, you then need to track your household cash flow. This is another critical step which will later help you in budgeting.

Determining your household cash flow

One of the key aspects of managing your household cash flow is determining your current cash flow situation and tracking expenses. How can you do this?

1. The first and easiest step is simply looking at your bank statement or any other savings platform you may have at the end of each month and seeing if you have a positive balance that is increasing from one month to the next. If you do, you have positive cash flow.

2. The next step is tracking your expenses. This can be accomplished by collecting receipts for everything you spend money on. Then add them up and classify them by category. The “old school” way to track your expenses when household budgeting is to have a paper and pencil ledger in a notebook. You can also use a spreadsheet like Microsoft Excel. You can also make this easier by using a personal financial program available online which lets you enter your expenses and track them.

Tips to improve cash flow

Using the information above, you can create a cash flow using a spreadsheet or simply recording it in a book. After this exercise, if you find out that you have a negative cash flow, then there is a need to take corrective action. Improving or correcting negative cash flow comes down to one of three strategies:

• Smooth out cash flow by avoiding large periodic payment and making smaller payments throughout the month or year.

• Cut out spending.

• Increase income or other resources.

Sometimes short-term changes to expenses or finding ways to temporarily increase income can help improve your cash flow now, and sometimes the changes you make will need to stay in place for a long time to make a difference. Some of these suggestions may not work for you.

Let’s look at how you can work on the three strategies to improve cash flow if you have a negative cash flow (expenses exceeds income).

1. Smooth out cash flow

• Look at the due dates of your bills and other payments and plan how you are going to budget for it. One strategy you can employ is splitting a monthly payment into two smaller payments. For example, if a $700 rent payment is due on the first of the month, do not take this entire sum from your most recent pay. Divide this expense amongst each salary you receive during the previous month.

• Avoid large, lump sum or periodic payments by making monthly payments or monthly savings for those payments. For example, car insurance and taxes.

• Set up a savings account and automatically deposit the monthly amount of large, lump sum payments into the account so you are prepared when they are due.

• Check to see if you qualify for a government assistance program. For example free water program.

• Explore debt consolidation or restructure. Consumers can contact the Council on toll-free number 155 for further advice on this.

2. Cut out spending

Consider cutting your expenses on things you do not necessarily need. This may be a difficult yet important step if you have a negative cash flow. Let’s look at some of the expenses you can limit.

• Paid television, internet, and mobile plans. Check with your provider about bundling and lower cost plans or discontinue cable.

• Review insurance; check to make sure you have the best plans for car and home and life insurance. Check to see if moving insurances to one company will save you money, and check for other discounts

• Find ways to save on energy. For instance, turn off and unplug unused electric appliances, turn off lights when not in use and limiting use of air conditioning.

• Pay your bills and fines on time to avoid penalties

3. Increase income

• Start a small/side business apart from your daily job. This will not only ensure you have income security, but will help in attaining a positive cash flow.

• Invest your income is savings schemes or investment companies (of course proper research and due diligence is required.

The tips listed above are just few examples of action consumers get a positive cash flow. Consumers can come up with their own initiatives and innovative ways to accomplish the same. Look out for an article by the Council in next Saturday’s editions on the next step households/families can take in order become financially resilient. For complaints or advisories Fijians can contact the Council via the toll-free number 155 or email complaints@consumersfiji.org. Alternatively, consumers can lodge complaints via the Consumer Council of Fiji Mobile App.