Cash Flow Management

Taking care of your cash flow is the first and most basic piece of personal financial planning.  By learning to manage it correctly, you can reach any financial goal you might have.  But if you don’t get it right, you’ll be headed for financial disaster.

Cash flow management is just a fancy term for a budget.  But most people don’t like the word budget.  There’s something about that word that make you break out in hives!  Whenever I say to my wife in my most kind and loving voice, “Honey, let’s work on the budget.”  Her reply is usually, “Budget-shmudge-it”.  Yes, the term budget brings on feelings of panic, disdain and anger to all but the accountant types.  My advice to you?  Don’t call it a budget, call it something else.  Call it “cherry pie”, or “filet mignon”, or “cash flow management” if you’re the nerdy financial planning type.  It doesn’t matter what you call it, it only matters that you do it.

So here’s some simple, easy steps to follow to help you get in control of your cash flows.  Following these will help you pay off debt and accumulate wealth pretty quickly:

  1. Total up your monthy net income from all sources (after taxes & retirement plan contributions come out).
  2. Add up all your fixed expenses (mortgage or rent, car payments, insurance, etc.)
  3. Add up all your variable expenses for the last month (groceries, gasoline, utilities, gifts, etc.)
  4. On a spreadsheet or sheet of paper, create a category for all of your variable expenses.  Things like groceries, dining out, gasoline, utilities, cell phones, gifts, Christmas, travel/vacations, car repair, home repair, hair cuts, clothing, Wal-Mart/Target (all the things you use each month like shampoo, soap, razor blades, etc.).  Figure out how much you can afford to spend on each of these categories on a monthly basis.  Make sure that when you add up all these expense categories, the total is still less than or equal to your montly net income.
  5. Now subtract all your expenses (fixed and variable) from your income and see if you have anything left over.  If you do, this is great!  If not, then you need to see where you can make some changes so that you’re spending less each month.  Anything left over can be used to pay off debt, or be added to savings.
  6. Record your expenses on your spreadsheet or sheet of paper (or financial software if you like) promptly.  Some people like to do this daily, others weekly.  Any less frequent than weekly and you’re asking for trouble.  Your brain can’t remember how much money is left in each of these categories for the month.  So you need to record it quickly so you know where you’re at.  For example, subtract what you spent on groceries as soon as you get home from the store so you know how much you have left to spend for the rest of the month.

The key to making this work is the regular tracking of your expenses so that you don’t overspend before the month is over.  If you are married, it’s very important for you and your spouse to do this together.  You need to both pull out all your receipts and record them at least weekly.  This will help make sure you’re both on the same page and working together.  It is very difficult, if not impossible to master cash flow management if you and your spouse don’t work together on it.

It’s not unusual for one spouse to track the money and pay the bills, and the other to not really be involved in it.  But to make this work, you both need to be committed to staying within your spending boundries each month.  If either one of you is out there swiping cards and spending willy nilly, it’s just not going to work.  You will continue to pile up credit card debt as you head toward personal bankruptcy.  Financial problems are the leading cause of most divorces in our society today.  But it doesn’t have to end up that way.  Anyone can learn to do this, and do it very well.  It’s just a matter of learning some new money habits, and getting rid of the old ones that are destructive.

I would love to hear your comments about other ways that you’ve found to help you control your spending and save more/pay off debt.  Please share them!

For more information about cash flow and other personal financial planning issues, visit

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