One of the essential tools to our debt freedom journey has been a Monthly Cash Flow plan. I’ve touched on it before, but I wanted to throw it out there again. They are so important to your financial success, and I just can’t sing their praises enough.
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.