The benefit of a cash flow plan is it assigns a place for your money before you get it. That way, when the money arrives, you already know where it is going. It is all outlined for you.
The purpose of a Cash Flow Plan is to outline every single expense your family incurs monthly. If you have some expenses that are yearly, bi-monthly, or just periodically--you still need to add them in your cash flow plan, but on a monthly level. For example, if you pay your insurance every six months, you need to divide that number by 6 and include it in your monthly cash flow plan.
Once you have figured out all of your expenses, now is the time to look over all of your incoming funds. For most people this will be easy, just figuring out your paycheck. For others, there may be multiple streams of income, or a variable income; which at times can be tricky to figure. Try to get the numbers as close as you possibly can. In the end, it will make things so much easier, and truly be beneficial to your journey. Providing an inaccurate number is setting your budget up to fail. Obviously, that isn't what you were going for. :)
After you have figured out all of your incoming funds and all of your outgoing expenses, now you know how much is left over at the end of the month. If for some reason you have more outgoing expenses than you do incoming funds, take a closer look at your expenses and see where you can trim. You may be surprised at how low you can get your numbers, or even what you can do away with!
In the event you have money left over--don't just leave it there unaccounted for! Give it a place to go or it will disappear before your eyes. Almost literally. If you have debt payments, pay toward your smallest debt, and work your way up, otherwise work on building up a $1000 emergency fund. Already have one? How about trying for 3-6 months worth of living expenses? Or start saving for a vacation?
I recommend making a new cash flow plan every month for the first few months, until you figure it all out. After that, I still recommend you doing one about every other month. Doing so will force you to take a look at your expenses again, and maybe find something that you've overlooked before.
I guarantee once you have your cash flow plan established, and you get the kinks worked out, you will be glad you set it up! Before we set up our cash flow plan we were living off of credit cards (using them weekly for gas and grocery expenses). Since setting up our plan at the end of 2007, we've payed off over $26,000 in debt!! Now that's results!
Other Posts of Interest:
- Home Management Binder: Finances Section
- 2009 Goal Updates
- This post is linked to Works For Me Wednesday and Frugal Friday.
16 comments:
You're so right. The Cash Flow Plan REALLY WORKS! I've been bad for the last 3 months and haven't done one and sure enough, we got off track. We are starting fresh this month and it feels SO much better to have a plan!
You have really been an encouragement to me! I intended on using a regular old budget, but this sounds much more efficient. Allocating where every penny goes, leaves less room for spending, which is great considering we are on a fluctuating income!
Is your email address listed anywhere on your blog?
Anna--
Yes, my email address can be found in the "Contact" tab above. Here it is though, gettingfreedomnet @ gmail.com.
We were formally on a regular ol' budget--but noticed a HUGE difference when we start putting a place to every single penny. Thank you for your comment! :)
What do you use for a Cash Flow sheet?
Michele-
I use a spiral bound notebook, for a couple reasons. Something about writing the information down just works better for me, versus storing it electronically. Also, since it is a notebook, I can go back and see former cash flow plans, and my bi-weekly bill assignmeents.
In this notebook I also track our financial journey, debt snowball, and write plenty of notes to myself regarding our future plans. I've kept one since the beginning of 2008 and I've loved being able to go back and read all this information and see exactly how far we've come.
I hope that all makes sense!
We're learning the hard way!
It's very costly to have 3 teens all at once and one of them in college.
During 2008, hubby lost his job for 4 months. We are still trying to catch up.
We've found having money go directly to something....keeps us lined up.
There's never enough..but God never fails.
Sorry, didn't see it there ;) I've found that using a notebook for all my planning has worked best for me too. I'm not sure why. I've tried using binders and other more "organized" systems, but I always seem to go back to the boring old notebook. I use for everything from planning my day, to meal plans, and grocery lists. I'll email you soon...I'd like to pick your brain a bit :)
I just set up my first one of these last week and I'm excited to see how it plays out. I plan on tweaking it until I get it "just right" for now so we can attack our debts as well. I have a column on my spreadsheet that tallies the difference in spending and incoming and have another column to note where that will be allotted. I'm excited to get this rolling. Great tip!
Thanks for sharing. I'll be back for more encouragement as my hunny and I just started Ramsey's FPU. :)
Heather
http://lilyofthefield-heather.blogspot.com
This is really good advice. We've been talking a lot lately about budgeting and where our money goes, and I think we need to a plan like this. Thanks for sharing!
This is really good advice. We've been talking a lot lately about budgeting and where our money goes, and I think we need to a plan like this. Thanks for sharing!
great post when you know exactly where money goes it does help out alot
Congratulations on achieving so much is not so much time...very impressive. I think even more fundamental than a monthly cash flow statement has been getting my husband and me on the EXACT same page. We've struggled mightily with issue and it derailed our debt progress for at least a year. Now that we've both seen the light, we're finally starting to make progress and my heart feels lighter, even as our numbers don't yet reflect much progress.
Just stopping by from WFMW (almost a week later xP ). Loved the post. :D
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