7 cash flow steps for a healthy budget


The word budget can scare even the strongest. If there’s one thing very few people are ready for when they leave the safety of their home for the first time, it’s money. Not too many people even know how to balance their checkbook after opening their first checking account. So, creating a budget can be a scary proposition for anyone who isn’t good at tracking their money.

But if we look at a budget in a different light, it might be easier to live with what it is. And all it is is a cash plan. All a budget does is track where the money comes from and where it goes. Cash flow; it’s what makes the world go round.

Here are 7 steps you can use to plan your cash flow and before you know it you will have established a budget. Start with a sheet of paper and a pencil; you can save those fancy budgeting packages for later.

1. Write down your monthly income. If you are a salaried worker, this should be easy. If your income is not as stable, add the income of the last three months and take the average by dividing by three. This will give you a good starting point.

2. Start writing down all your monthly expenses. Mortgage, rent, car payment, credit card payments, utilities, groceries, restaurants, entertainment, and anything you spend money on. For expenses that fluctuate, such as groceries and gas, use the three-month average method to get an accurate amount.

3. Here’s the scary part for most people. Subtract expenses from income and see what’s left. You will either have positive cash flow or negative cash flow. Unfortunately, in this day of mounting debt, most people have negative cash flow.

4. Once you have your monthly cash flow in front of you, you can start allocating your money to your expenses. As you make these payments throughout the month, write them down to see how your expenses match up with what you budgeted for that particular item.

5. If you have negative cash flow, you can start looking at everything you’ve written and find areas where your spending may not be in the best interest of your financial goals. By doing so, you can free up money for more important financial considerations.

6. The first time you do a cash flow plan, it probably won’t work very well. It normally takes about three months to get everything running smoothly while you figure out where your money is going each month. Be patient with your budget and before long it will start working and you will regain control of your money.

7. Once you are comfortable with your written budget and have more control over where your money goes and what it does, consider investing in budgeting software such as Quicken. It can make your cash flow plan much easier, and together with added features like retirement and tax planning, it can give you a solid financial future.

By using these 7 cash flow steps, you can get started on your budget quickly and easily. Only by taking back control of your money can you improve your financial future for you and your family.

Source by Andrew Bicknell

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