Cash Flow Budget sounds so businessy (I have found that writing like this I can make up words…).
Cash Flow is the movement of actual cash money through your family. You have money coming in and money going out. When I over simplify this … You want more money coming in than going out. This includes things like credit cards, debit cards, etc. Anything that causes money to move from one place to another impacts your “Cash Flow.”
If you are a more curious and the learner type. Enneagram 5s…Learn more from Investopedia abou Cash Flow.
Why is something that is so simple so hard for Families in America?
Why do we feel like we have to buy into every ad we look at?
Why are we never content with our income level?
Why is Debt such an easy option to “fill in” the gap?
So many questions, which mostly get into the psychology of the “American Way.”
What is the point?
Families get in trouble when we don’t track our money, budget our money and understand how money comes in and out of our family. Cash Flow Budgeting takes a look at how much money you are bringing in, and then make sure for that period of time you can afford all of your bills. Most people will look at this on a monthly basis because you are getting paid every week, every other week, twice a month or at least one a month (I will cover those living on commission lifestyles next…).
Let’s say for the month of March you are budgeting to bring in two paychecks. Those paychecks equal $1,000 each.
March Total Budgeted Income = $2,000
Then you have bills and other “wants” that are going to add up to $1,740.
March Budgeted Total Expenses = $1,740.
Total Budgeted Net Income/Positive Cash Flow = $260
This means you will bring in $260 more than you are planning to spend. Now as long as you stick to your budget this will work out, but let’s face it life happens. I like to build a “life happens” or “just in case” budget item line. The more you can plan for the unexpected the lower amount of stress you will introduce into your life.
I work for an organization where it is part of my responsibility to make sure we have positive cash flow. Meaning that over the course of a certain time period that we make sure that the amount of cash we have coming in out paces the amount of cash we have going out. To be financially healthy as an organization or as a family our cash flow needs to be a priority.
Budgets keep us financially healthy. #SaysTheMiddleChild
Budgets that keep Cash Flow a priority will keep us financially thriving. #SaysTheMiddleChild
What if my paychecks come at random times (Commissions, Royalties, etc)?
I have spent a portion of my career in real estate. You don’t get paid until a property closes escrow. Your paychecks might be larger than normal, but you need that money to last longer. My best advice here is to estimate (maybe based on prior year) of income for the year or quarter.
Here is what our family did. We put all of our commission checks in a money market bank account. We put our taxes in a separate savings account for when we needed to pay quarterly taxes, then we deposited our budgeted monthly “income” in our regular checking account every two weeks. It was like we paid ourselves. It created smaller budget and cash flow periods for our family to manage. It also showed us how many weeks or months of cash we had left in the bank.
There are easy ways to plan, even when income is irregular. Cash Flow is still very important.
#SaysTheMiddleChild
#1 : Stop the Revolving Door of Debt
Do you remember those Easy Buttons from Staples? I used to have one of those sitting on my desk at the office. They still sell them, but used to be so much more popular. Kind of like when Staples was more popular?
Most of the time credit cards or other revolving credit solutions are the easy button when our cash flow becomes tight. When the budget is running tight we always look for the “Easy Button” and all too often it is the credit card that comes out to save the day.
Again, you should read this other article I wrote on Understanding Credit cards.
If you choose to use credit cards then you need to see those expenses as a part of your budget, not expenses you will figure out later. Have a plan. Credit Cards are not evil, but they can create problems if you don’t have a plan for them.
Credit cards should never be the safety net of your family’s financial future. #TheMiddleChildSays
#2: Talk about Money (Often)
Families that talk about money will succeed with their money. All too often families (spouses) stop talking about their money because it causes too much stress or always turns out in an argument. This is the middle child in me, but the more you can talk (from the very beginning) the more successful you will be with your budget and cash flow.
#3: Understand the Income will Drive Cash Flow
Families normally start with the expenses section of their budgets to try and fix their cash flow problems. Yes, we need to be sure we are managing our expenses well and our budget is realistic. But, often we think our income lines are set in stone.
What if…
- You looked at taking some of your savings and investing it. You could create an income stream from investments. Not to mention grow your retirement hopes and dreams…
- You could start a side hustle…
- Drive for Uber/Lyft.
- Are you creative? Open an Etsy Shop.
- My wife opened a Home Bakery. @TheChocolateChippery
- I started this Website. @TheMiddleChildMoney
- You got your Real Estate License.
Again, you can focus on your expenses, but you will always be limited. If you focus on your income you can significantly impact your cash flow.
Top Action Items:
- Create a Cash Flow Budget for your Family
- Have a plan for Credit Cards
- What can you do to create more income?
