Previously, we’ve talked about what your budget should look like. As you develop your budget (or before you develop your budget if you don’t have one already) it might be helpful for you to compare the money you make against the money you spend.
This is called a cash flow. When preparing an initial budget, it is helpful to track cash flow for several months to get an accurate picture of what items your budget needs to take into account. A cash flow analysis will tell you where your financial priorities are by reflecting where you spend your dollars.
It’s also a valuable tool to show your family – including yourself – your financial situation. It can highlight areas where you need to improve: where you need to cut spending or where you need to save more.
With the holiday season just around the corner, now is a great time to determine your cash flow and establish a budget. It’s easy to get lost in the spirit of giving during this time of year and spend more than you can afford. Budgeting for gifts can help you control your spending – and reviewing your cash flow can help you figure out just what that budget should look like.
To figure out your cash flow, first decide how long to track and record your spending: monthly, biannually, annually, etc. Then list all of your income and expenses in that period as accurately as possible. Subtract your expenses from your income to figure out if you have a positive or negative cash flow during that stretch of time.
We have a cash flow worksheet here: you can use it as is, or use it as a starting point in developing your own.