Determine and monitor your cash flow
Whether you always seem to run out of money before the next payday, or you have money left over at the end of the month, you can benefit from knowing how you are spending your money.
Everyone should understand the concept of cash flow. Basically, money comes in (what you earn) and then money goes out (what you spend). If you run out of money before the next payday, or before you've paid all your bills for the month, then you know you have a cash flow problem. Unfortunately, many of us assume that the real problem is that we don't make enough money, when really it's about controlling our spending and changing our lifestyle to match our income. This starts with really understanding how we are spending our money.
If you are fortunate to have money left over at the end of the month, then you are probably less concerned about your cash flow. After all, you managed to survive another month and pay all your bills. However, are you accomplishing all of your financial goals? Do you have an emergency fund, are your credit cards all paid off, are you putting the maximum amount in your retirement fund? See, it's not enough to just pay your bills every month; you need to be making progress on your goals!
If you are like many people, you have no idea where your money goes every month. Oh sure, you know what your major expenses are (rent, utilities, phone, etc.), and you know you should have more money left over at the end of the month, but somehow it just seems to magically disappear. What's the answer? You already know the answer, you just haven't taken the steps necessary to determine how you can adjust your spending to solve your cash flow problem.
This section provides step-by-step procedures for learning how to:
- Track and document your spending
- Organize your spending into categories
- Document your income
- Determine and briefly analyze your cash flow result
Now, get started with step one, track and document your spending.