Where does my money go? The answer to that question can be found in a personal cash flow statement. A personal cash flow statement is an extremely useful tool for anyone who wants to chart the flow of their money. The cash flow statement shows more than just the disbursement of all money inflows and outflows. It also displays spending, saving and investing practices for a given period of time which can help to identify specific flaws in your financial plan. A cash flow statement consists of three parts: income (inflows), expenditures and savings (outflows). All sources of income are considered inflows such as gross salaries and wages, tax refunds, Social Security benefits, dividend and interest income, rental income, annuity payments, proceeds from loans, inheritance, cash gifts, income from a trust fund, savings and checking account withdrawals, proceeds from the liquidation of personal property as well as alimony and child support payments. Outflows are fairly obvious. Outflows can be broken down into fixed and variable outflows. Fixed outflows are easier to track because they are recurring and generally stable. Variable outflows can also include unexpected expenses such as emergency home repairs. Surprisingly, savings and investing are also expenditures and are counted as outflows. Saving and investing require planning and funds need to be allocated monthly. In a sense, they can be considered as a pay yourself first outflow. When recording outflows, only the money that is being disbursed should be noted as an expenditure. Bills for future payment are not recorded as outflows during the time period under consideration.
Let us take a brief look at the structure of a personal cash flow statement. The following is an example of a monthly personal cash flow statement which can be easily adjusted to fit your particular situation. You can also break down specific categories such as home maintenance into subcomponents for more detailed analysis. You can do a personal cash flow statement on a monthly or yearly basis. A monthly statement requires less data and may be more manageable for beginners. It can also more clearly highlight current cash management practices for improvement.
Personal Cash Flow Statement
For March 31, _____
Gross Salaries And Wages:
Other Income (e.g., income from business):
Rent Or Mortgage Payments:
Education/Tuition For Children:
Total Fixed Outflows:
Debit Card Payments:
Credit Card Payments:
Total Variable Outflows:
Net Cash Flow:
(the net cash flow is the difference between the total inflows and total outflows.)
It is important to keep in mind that the cash flow statement is only a record of the inflows and outflows of a given period in time. Even if the net cash flow is positive, we cannot surmise that the funds from inflows mean that we will have more available money to put towards saving and investing outflows. For instance, if overall household debt is also increasing, it is more likely that saving and investing will be curtailed in order to put all available funds from inflows towards payment of debt.
A personal cash flow is inordinately useful for anyone who wants to exert more effective control and management of their finances. It can also be an extremely beneficial tool to analyze your progress in achieving specific financial goals.
For informational purposes only.