So what really is the difference between “Cash Flow” & “Budget”
Our goal is to help people run their life like a successful business. One of the best ways to do that is to start with your cash flow statement.
A cash flow statement t determines how much income you have left after paying for all fixed and variable expenses. Statement can is figured out with one simple calculation:
(Your Total Income) – (Your Total Expenses) = Your Net Cash Flow
You should do this simple analysis of your cash flow yearly, quarterly or even monthly. Many people do this monthly when managing personal finances.
You should know your specific “net cash flow number” and whether it is a positive, negative or neutral. This is a critical step on the road to financial security and success.
Positive Cash Flow: Great! This is the ideal situation to be in. It may allow you to take extra steps in saving or investing. You can even to treat yourself to something within reach that you have deferred buying in the past.
Negative Cash Flow: Oops! This is generally a sign that you are living beyond your means. You are likely incurring debt unless you have another source of income, such as a parent or otherwise.
Neutral Cash Flow: This is unlikely. Why? Because most people don’t spend exactly, to the penny, what they earn. Ending up with a zero (a pure breakeven) when calculating cash flow would be a real anomaly.
Once you know whether you have a positive or negative cash flow, then you can turn to the process of developing and defining your budget.
Cash Flow Plan VS The Real World
A budget will likely differ from your cash flow statement. This is because a budget both projects how you expect to allocate the cash flow and record how the cash flow was actually spent at the end of the month. It’s the difference between “a budget projection” and “the actual figures”. Since it is chances are your spending pattern will not exactly match your projections at the beginning of the period.
Don’t forget, knowing whether you are in the black or the red does not exactly define where your money is spent.
It is important to note that maintaining a budget can influence spending decisions. It encourages the setting of financial goals. And allowing you to compare those goals with actual spending patterns. This way an occasional course corrections can be had before things get out of hand.
If you’d like to learn more about how to work on your cash flow and your budget, Integrated Life and Financial Planning can help.
Located in Durham, NC, Integrated Life and Financial Planning is an independent financial services firm founded by Jerry Bergner, AAMS CMFC. As a Durham, NC-based Financial Planner, Jerry’s mission is to help you achieve the life YOU envision. His mission is to assist you in supporting the life you envision for yourself and those you care about. If you need help in clarifying that vision, he can work with you on that as well! Book a consultation meeting today.