Cash flow statement? I have one of those?
A spending plan tells you what you believe will happen each month. All the line items have an estimate of what that expense will cost you, such as $200 for gas, $325 for food, and so on. Those estimations must fit in the budget, which is primarily based on the amount of income you expect to receive every month. Then there is what actually happens during the month. That is a cash flow statement. Your cash flow statement is constructed by how the monthly obligations with known due dates align with when you receive a paycheck, a draw from your business, or state and federal benefits. And believe it or not, but the budget and cash flow statement must be reconciled. What did you project and was that close to reality?
My spending plan in an excel spreadsheet with anticipated amounts filled in for each line item, and my cash flow is logged in a paper desk calendar. Before the end of the month, I start projecting what next month’s budget should be. Sometimes I look back prior year’s if there are items that change with seasons or only happen at specific times of the year. At the end of the analysis, I have a plan for the next month. When I receive bill statements for the following month, I add those to my paper calendar, so I know when the bills are due. When I pay the bills, I update my spending plan with the actual payment amounts. I’ve already inserted my pay dates, so I have helpful visual of how my money will be utilized. I regularly reconcile those totals with my bank account because that lets me know my true discretionary income for purchases like groceries and fuel that don’t have a due date. (My car and stomach haven’t grasped the concept of a budget since they demand to be fed regularly. Can’t say I blame them, though. Being full feels amazing!) The “in between expenses” have to be managed by whatever discretionary income remains. You may realize this is what happens every month, and you follow a similar process. Or this is where your financial life can truly be set on a positive track.
When you look at your month, are you clear on how and when your money comes in and goes out? My post from September 2024, called “Helping ends meet” lays out a couple scenarios for different timing of receiving income relative to known obligations and how adjusting the due dates can bring some relief to a budget. I mention that post is because I used a literal calendar to demonstrate how money flowed through that example household’s budget. Seeing it laid out in that manner can help a consumer decide where pain points may crop up and how decisions can be made to mitigate the impact. If you have been following StudioM for a while (Thank you!), this is a reminder. If you are a new acquaintance, (Welcome!) let me offer a helpful tip.
Get a calendar, paper or digital, and simply start plugging in the due amounts on the dates the bills are to be paid. I know it sounds elementary, and you may not be a visual learner but humor us. Do you see a lot of bills due in one part of the month, or are they evenly spread out? Do you receive income at untraditional intervals in the month? Instead of the 1st and 15th, or 15th and 30th, your pay schedule is the 3rd and 24th. That unusual pay schedule can make covering your bills a little weird. Or if you are a small business owner, your income can be unpredictable. Waiting for clients to pay their bills certainly impacts your ability to pay yours. No matter how you earn income, gaining an understanding of how money moves in and out of your budget can only improve your decision making. What basic adjustments can you make that ‘even’ out the cash flow? Can this analysis address the feeling that you are living paycheck to paycheck? The math may suggest that there is plenty of money each month, but the timing of the due dates can increase the uneasiness.
Take back your peace by grabbing a calendar and follow where it leads you. A link to the September 2024 blog post is here and above. I also included a link to download the calendar. You can use the right-side margin to summarize weekly income and expenses. That calculation gives an idea of how much discretionary income you have available for food, entertainment and fuel. It may take a couple turns to get the hang of the analysis, but I promise it will get easier. Make notes of infrequent expenditures like lump sum insurance premiums, car registrations, or annual subscriptions (this one has cost me a few times. Grr…). You would have to do a few calculations to see if it is worth it, but if converting those annual costs to monthly expenses is easier to keep up with, try it. What are companies going to do, not take your money each month? Unlikely. So much good can come from reviewing your cash flow statement. If you don’t want to do it alone, let us know. If you can’t tell, I love these things!!
50/70/100 principle. 10% vital = grabbing a calendar. We can do this because StudioM Financial is here to help. Reach out at letstalk@studiomfinancial.net or (469) 615-0387. Until we meet, keep working on the change.