There should be a fine line between saving and spending, and one should have the sound financial knowledge to incorporate these techniques into daily life. Being knowledgeable on how to use cash flow vs sinking funds early enough, could lead you to the point of being financially free. It is the dream of everyone to spend a life full of joys and luxuries, but it is for you who are filthy rich.
It is familiar to many people who save money that they feel deprived of something. Our community has made it difficult for us to strive for our best. The advertising all around our community pushes us to buy things that are not evenly useful for us.
SINKING FUND
The sinking fund is an essential money-saving strategy for long-term goals. In sinking funds, the person following the approach saves a fixed amount every month until he has saved enough money to fulfill his purpose.
For example, if you want to buy a new air conditioner, then you will have to save $50 per month until you have saved enough to buy an air conditioner.
It is a wiser and sound method for saving since the small amount you save doesn't seem to be a burden on you, and in this way, you can fulfill your goals. But you must keep one thing in mind you don't use the sinking fund at any cost during the whole tenure.
In case of any emergency, you must use the emergency funds so that you don't disturb the sinking funds.
Using the sinking fund technique is better since it helps save money rather than disturbing your budget and spending it right away on liabilities.
Sinking funds can be used for home restorations, family vacations, Christmas or other festivals, and other liabilities.
CASH FLOW
Cash flow is another financial technique helping other than the sinking fund technique used for long-term expenses.
In the cash flow technique, the person can pay for the expenses directly from his income.
For example, if you have a sudden guest visiting, you can now spend on their hospitality from your income. You don't need to disturb your emergency savings or other funds. It is usually used for unexpected events but not for emergencies.
For instance, if you have to go to a birthday party or pay a visit to a friend's house, all these expenses can be covered in the cash flow technique. But one should remember that the cash flow must be a handsome amount to cover all the costs.
SELECTING SINKING FUND VS CASH FLOW
Cash Flow VS Sinking funds - Which should I Choose?
It is important to understand under what conditions a person should opt for sinking funds vs cash flow. It is essential to comprehend your economic situation at the time of deciding whether you can opt for cash flow or not.
Let's discuss in which conditions one must use the sinking fund technique and in which situations one should stick to cash flow.
WHEN TO UTILIZE THE SINKING FUND?
Sinking funds should be used when you cannot pay the expenses simultaneously.
For example, if you want to buy a refrigerator that costs around $1200 and use the sinking fund technique, then you will have to save about $100 for about 12 months to buy the fridge.
In the sinking fund technique, you already know the price and can adjust your monthly saving based on your income. But if you choose to use the cash flow technique, you will have to consider your protection from the particular month, whether you have $1200 to buy a refrigerator or not.
If you have extra money saved up, you can use it, without disturbing your monthly expenses.
WHEN TO UTILIZE CASH FLOW
Cash flowing is a good technique since it allows you to enjoy your life in the first place. Cash flowing your expenses is a good option if you are not disturbing your monthly expenditure and have enough savings for spending.
If you have an extra $300 at the end of the month, then you can decide what to do with that. For example, you can utilize it for having a crockery set, watching a movie with your friends, or anything you want.
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