This post is one in a series of 10 posts designed to help you get, and remain, financially healthy. It’s best to start at this post. [click here]
The cash flow statement is another neat personal financial statement that gets you organized. Before we start however, I want to tell you that a cash flow statement is not a budget. A cash flow statement tells you where you are spending your money and how much you are spending. With that said…. here’s how it works.
First, take inventory of all your income. The best way to do this is by the month. Use your paystubs and add up all of your income for a one month period.
Now, we can get really complicated with this or we can stay simple. I’m going to keep it simple for this explanation… we can get complex later.
The income I want you to use is your net income. This is the actual amount of the check you receive or the amount your company direct deposits into your bank account for a one month period. This amount is after all of your payroll deductions and taxes are taken out. Your gross income is before payroll deductions and taxes; your net income is after payroll deductions and taxes.
Now that you have your net income, let’s make a list of where and how you spend your money.
Begin writing down the names of where you spend your money and how much you spend in each area. Write down your mortgage or the name of the place you rent and then write how much you spend on it each month. Write down your mobile phone provider and then the amount you spend on it each month. Write down how much you spend going out to eat, on groceries, on household items. Write down how much you spend on car insurance, or other insurance products.
If you have a car loan, write down your monthly car payment. If you have payments to credit cards, write these down along with how much you pay each month. Write down how much you spend on items such as personal care and such… okay, I think you’re getting it.
Once you’ve completed your list of items, total them up. These are your expenses. Now subtract your expenses from your income and hope it’s a positive number. If you subtract your expense from your income and the number is negative then you spend more than you make… not good.
Now you have a statement of cash flow and can see where and how much of your income is going to each item.
Okay… you are well on your way to getting a plan.
Now, let’s plug those spending holes.