What’s Your Cashflow?

Each month you should have an expected amount of income, fixed expenses and variable expenses. This activity can be captured on a personal cash flow statement. Your personal cashflow is what you make minus what you spend over a certain period of time. It is vital that you understand not only what is your cashflow, but when is your cash flow. You can get started with tracking your cashflow by downloading a free cashflow form from the Lionhood Financial Forms page.

“Making more money will not solve your problems if cash flow is your problem.”

-Robert Kiyosaki

First, calculate your monthly net income (after-tax or take home pay). This should include your salary and any other recurring income that is consistent like a second job, child support, social security, etc. Then, calculate your future monthly expenses. When you’re finding it hard to make your paycheck last, we recommend that you separate your expenses into three categories: what you must pay, want you need to pay, and what you want to pay (in that order).

Your “must pay” bills are your essentials for life: shelter, utilities, food, and transportation. These bills should be the first items that you pay as they are required to remain in the best position to continue to produce an income.

Next, you should include the bills you need to pay: These include your loan or credit card payments, membership fees, child support or alimony payments etc. You also spend on items that are discretionary, instead of necessary and these bills must be included so don’t forget the cable television subscriptions, clothing, gifts, etc.

Your actual expenses may vary, but a monthly estimate for your total expenses based on what you’ve spent in previous months will give you a reliable starting point. Subtract your monthly expenses from your monthly net income to determine your leftover cash supply. If the balance is a negative, because your plan spends more than you earn, you need to look for ways to make up the difference. If the result is a positive, but your spending nearly equals your earnings, make a plan to use those dollars before they slip out of your bank account.

Math doesn’t lie. At the end of the day your real financial problem may require some simple arithmetic. Live within your means and if that’s a problem, you need to earn more, give more, and spend less. A Lionhood Financial Coach can help you do more with all of the above. Schedule an assessment today!