Systematic Cash Flow Planning and Your Financial Stability

Exactly how much money does your family bring home per month? What are your exact expenses?

If you're like most people, you don't have good answers to those questions. You may have approximations for both, but it's unlikely that you have a to-the-dollar idea of your income and expenditures. Many people can't even offer a realistic guess of what their real income and expenses are.
Even those who can tell you to the penny how much they're making are often unable to give you a ballpark figure regarding what they actually spend.

If you did have that information–and knew how to use it–your financial life could completely change. Instead of wondering why your debt obligations are increasing or why your investments are lagging behind schedule, you'll finally have the opportunity to escape debt's burden and to plan for your long-term future. Plus, the present will seem a lot more pleasant when you're not worried about whether your money can "stretch" to cover your needs.

"Getting from the mess in which many of us find ourselves to a situation in which we're in control of our financial future requires the use of a systematic approach to the problem. Instead of trying to "fix" everything at once, there is a process that should be followed in order to produce the best possible results."
That process begins by gathering all of your financial records and statements. You'll want to have all possible data at your disposal as you plan the management of your household's cash flow. If you don't get everything together, you risk committing an error or an oversight that can adversely impact your ability to create a working cash flow management plan.
You'll then address the questions we posed earlier.

You'll calculate your monthly income and all of your monthly expenses, as well. Once you have those numbers, you'll drill deeper with respect to expenses.

You'll classify all of your monthly expenses, distinguishing non-variable "fixed" expenses from those that vary only slightly and those that vary considerably based on the month. While you're doing this, make a mental note of the areas in which your personal habits and decisions play a pivotal role in the amount spent. You may need to revisit those expenses later in order to cut down on your spending. At this point, however, the imperative is categorizing those obligations.

At that point, it's time to list all of the expenses, the amount to be paid for each of them, and the date upon which payment will be made.
Consider every one of your expenses — don't leave any of them out.

Now, for the moment of truth. Do your expenses amount to more than you're currently bringing home? If not, you've just found the reason why your debt load continues to grow. You're perpetually short and are probably using credit cards or some other form of credit to make ends meet. That's an untenable situation. You'll need to revisit your expenses, looking ways to "trim the fat" until your income and expense numbers balance.

Once you're at that point, you'll want to save and print the cash flow plan you've created. Then, you'll actually allocate the funds for all of the aforementioned expenses. We recommend using the "envelope system" to manage your cash. This involves setting up actual envelopes for each expense on your plan. That's the money you'll use to handle those expenses. If the envelope "runs dry" by the end of the month, you simply can't spend any more on that area for the month.

At the end of every month, you'll want to revisit your plan. Based on any changes and your experiences from the prior month, you'll revisit and modify your cash flow plan.

This approach is relatively simple, but it does involve a number of specific steps and calculations, you'll want to follow a detailed and well-organized blueprint for cash flow planning. If you do, you'll finally be able to get your financial house in order.