Functional Friday: Take Control of Your Cash Flow
In theory, managing your money seems like a simple task. It’s something we’ve been taught to do by parents, something we’ve read in financial articles about, or a thought that’s come to mind. Everyone has their own “method”, but when it boils down to it, why does it seem so difficult to manage our cash-flow efficiently, effectively, and optimally?
Here’s a quick glimpse into a week for the average young professional (you): Monday you get up, head to work, making the critical Starbucks detour. Later, lunchtime comes around. And you know everyone must catch-up on the previous weekend, so you go out to Corner Bakery, Chipotle, or Panera. Perhaps a snack here or there. And at the end of the day, you may (but, be real, probably not) make dinner, or you order out. Now, repeat that four more days with a few twists here and there.
Then there’s the weekend, and we all know how costly those get, especially when you’re hitting the beaches in the summer. Don’t forget happy hours, bars, restaurants, movies, entertainment, sporting events, road trips & travel.
Now add in the things you have to do like bills, rent/mortgage, food, etc. After its all said and done, there doesn’t seem to be too much left over.
So, here’s the big question, how much are you spending? Here’s the bigger question(s), how much are you savings, and do you think you are savings what you could, or should, be?
For the vast majority I meet with, the overwhelming answer is a big “NO.”
Now, let’s be clear. I’m not discouraging you from anything of those I just mentioned. I’m not suggesting you’re wrong if that describes you. Whether your lifestyle fits the mold I laid out or it’s more modest, we could all agree that we could be doing more, if we’re honest with ourselves.
How do I do more?
There’s much to say about cash-flow management and I’m sure we’ll be talking about this in the future. But let me offer you one piece of advice.
Cover your ears, because I’m about to drop the dreaded word: BUDGET.
No one is exempt from keeping a budget. And, truthfully, this is the beginning of any financial plan — whether basic and rudimentary or complex and multi-faceted.
Hang with me and let me redefine what a “budget” really is and should be.
The trap the most people fall into when “sticking to a budget” is they begin restricting and confining themselves and their spending. They usually do so with the best of intentions, but they inevitably fail because they don’t have an appreciation for the amount of money they spend on a discretionary basis on the things they enjoy.
Think about it like the New Years health kick. Most adopt a diet and workout routine they haven’t done in a year. Drastic and sudden life changes like that generally don’t work unless you’re on “The Biggest Loser.”
You should monitor how much you're paying each month for a rare steak.
So try taking a different approach. Look at a “budget” as a cash-flow analysis.
Initially, a budget should accurately reflect the cash-inflow (income) and outlay (fixed and variable expenses) in your household. Initially, you may have more trouble identifying your variable expenses. This may take some time and work. Use recent bank statements, computer software or online tools that track and categorize spending real-time (Feel free to ask if you would like a suggestion for any of these). Whatever the method, the result will be an accurate sense of how much money you are spending.
How a budget can help
1. Once you are aware of your spending habits, you can, and likely will, take a harder look at areas you consider to be excessive and begin to monitor more.
2. With an accurate sense of how much outflow you have each month, you can more clearly identify your savings capacity. Define that and you can then begin to develop savings plans and strategies with clear goals in mind.
And there’s added bonuses. For one, you will develop a habit of monitoring your cash-flow and savings. And we know whether good or bad, habits are hard to break. If you can develop good money management habits early on, it only benefits you as your income grows and life circumstances become more complex.
Documents
Budget Worksheet (.doc)
Sample budget worksheet (.xls)
Related Posts
-
Functional Friday: Step Up Your Work Fashion
-
No Cash, Again?
-
$25,000 Cash Stolen From Safe/Underneath Driver’s Seat
anything better than mint.com?
Jared – Anything better for online tools than mint.com you mean?
This is great advice…but not just for Gen Y, for everyone. Most people could stand to have a better handle on where their money goes, me included. Once I added up how much Starbucks and lunch out every day was costing me per month, I really cut down and made some changes. It really isn’t that bad to bring your lunch to work, and it’s probably healthier as well. Just think, if you spend $25 weekly on coffee and $50 weekly on lunches, that’s $300 per month! Isn’t there somewhere else you could spend that $300 that would be more meaningful/satisfying for you? I know in my case, the answer was yes. Good job!
I am a HUGE yodlee.com fan. It’s for the most part the same as mint.com.
It let’s you link basically any account you have ever had to one neatly organized list, and provides you with stats, charts, data – everything you could ask for. I’m talking credit cards, savings accounts, IRAs, student loans, business accounts – yodlee can handle just about everything.
Plus it sends you text messages when your expenses go above certain limits that you set.
Yes…some online tool that is better than mint.com. I’ll have to check out yodlee.com
Thanks!
[...] In short, everything must be set it is appropriate context. Goals, present circumstances, and cash flow must always be considered before making any financial decision. Always consult your financial [...]
[...] have talked about a few alternatives in the past. But to determine how your cash flow should best be allocated, you may want to consider consulting a financial professional if you’re not 100% confident with [...]
[...] reference to a past article discussing budgeting and cash flow management, the question that should be asked, is “what purpose does the money serve?” While asking that [...]