Throughout my time working in Financial Planning, I have come to realize that living without a cash flow plan is like traveling across the country without a roadmap. It can be accomplished but not without pain and wasted time. Only 40% of Americans have some kind of cash flow plan, but those who have it agree that they feel less stress and they spend guilt-free because it is part of their plan. There’s no one-size-fits-all strategy. You may need to try a few strategies, budgeting tools or tactics to land on the one that works best for you. If you’ve tried unsuccessfully to budget before, changing up your strategy may be the key to doing better in the future. Here are a few tricks that may help you.
- Establish your income. To know how much you can spend, you need to know first how much you earn. This step may get a little complicated if you have multiple sources of income or if your income varies every month. If your income varies, use the lowest amount for your plan. This way, if your income is low certain months there are not unpleasant surprises. And when income is higher, you have an opportunity to save!
- Track your expenses. Start expense tracking with the most important categories first. Important categories are those that you need to live. Rent or mortgage, food, utilities, transportation or medical needs are basic items. Continue with your discretionary expenses. These are the expenses you want, but don’t need. Entertainment, subscriptions or memberships or household decorations are a few examples. Separate your monthly and non-monthly expenses. Think about your insurance premiums, car registrations or Christmas gifts. Confirm which month your bill is due and plan ahead. As I mentioned earlier, each person has a different system that works for them. For me, I have a separate bank account for these expenses. Throughout the year, I deposit money in this account so that, by December, I have the total amount I am going to need for these expenses for the upcoming year.
- Plan for savings. Before you get to this step, you may be surprised by how much you are spending in some categories. It is time to set priorities and determine which categories you would feel better spending less. Also, by comparing your income and your expenses, you can get a very good idea of how much you can save.
- Try a budgeting tool. There are many different tools out there to help you be successful. I particularly like Mint. It is not perfect, but it gets pretty close! You must link your bank and credit card account to Mint and it will track your expenses for you. It requires some work at the beginning, but once it is set, it is a great tool! If you prefer a piece of paper, we have an excellent template you can use and we are happy to share it with you!
- Find an accountability partner. Everything is easier in life if you have someone you can rely on—maybe it is your spouse, maybe a sibling. If you can’t find one, let us know! We will be happy to be your partner and guide you through this process. We promise to be gentle!
It is our sincere hope that, with these little tricks, your financial life becomes easier. As author John Maxwell said, “A Cash Flow Plan is simply telling your money what to do instead of wondering where it went.” Have a plan, make your money work for you, and live a peaceful, less stressed life!